‘Interest rates not likely to come down significantly’

MANILA, Philippines — Global interest rates are not expected to come down significantly soon despite the easing of inflation pressure, according to S&P Global Ratings.

In its Asia-Pacific Sector Roundup Q1 2024 titled “Slowing Dragons, Roaring Tigers,” the debt watcher said it does not expect policy interest rates to come down amid challenges in global inflation.

“While policy rates in most economies have been on hold in this setting, we don’t expect policy interest rates to come down significantly soon. In addition to the lingering challenges on the inflation front, this is because we don’t see US interest rates falling soon,” S&P said.

The credit rating agency pointed out that renewed inflation pressure has mostly been contained.

“In 2023, sequential core price increases eased in most Asia-Pacific economies, paving the way for headline year-on-year inflation to decline. The impact of recent increases in international prices of oil and food on overall inflation has so far remained modest, especially in terms of core inflation momentum,” S&P said.

It added that this has limited the need for a new round of monetary tightening.

S&P said core inflation has remained moderate in the Philippines so far.

“But hefty food price increases, in part driven by rice price hikes, spurred the central bank to raise rates again there in October,” it said.

Inflation eased significantly to 4.9 percent in October after quickening for two straight months to 5.3 percent in August and 6.1 percent in September. It eased for six straight months to hit a year-low of 4.7 percent in July from a peak of 8.7 percent in January.

Excluding volatile food and energy prices, core inflation eased to 5.3 percent in October from 5.9 percent in September.

Headline inflation averaged 6.4 percent from January to October, still way above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Likewise, core inflation averaged seven percent during the 10-month period.

The BSP has raised key policy rates by a total of 450 basis points since May last year, including the 25-basis-point hike on Oct. 26 to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations.

BSP Governor Eli Remolona Jr. earlier signaled the Monetary Board could leave interest rates untouched in the next rate-setting meeting scheduled on Nov. 16 as inflation is seen easing further barring any shocks.

S&P expects a modest pick up in economic growth next year after a slow down this year.

“Following a slowdown in 2023, we expect a modest pick-up in growth in 2024. Growth momentum remains especially robust in relatively domestic demand-led emerging market economies. India continues to lead,” S&P said.

Overall, the credit rating agency expects the region, excluding China, to grow by 4.4 percent in 2024 from the projected 3.9 percent in 2023, with the pick-up due to a gradual improvement in external demand and some monetary policy easing.

“We expect the economic growth of Hong Kong, Japan, Australia, and mainland China to slow in 2024 because of trade and higher interest rates. We anticipate Indonesia will hold steady. Meanwhile Taiwan, Vietnam, New Zealand, Singapore, South Korea, Philippines, India, Thailand and Malaysia could speed up,” S&P said.

Based on its last estimate, S&P sees the Philippine gross domestic product (GDP) growing by 5.2 percent this year and by 6.1 percent next year.

Both projections are lower than the six to seven percent and 6.5 percent to eight percent targets penned