Metrobank trims outlook on rate cuts

MANILA, Philippines — Metropolitan Bank & Trust Co. (Metrobank) has trimmed its expectations of rate easing as it now sees the Philippine central bank cutting rates by 50 basis points in the fourth quarter, which would bring the key interest rate down to six percent by year-end.

In its latest report, Metrobank’s Research and Market Strategy Department said the Bangko Sentral ng Pilipinas (BSP) may begin its own easing cycle in the fourth quarter, after the US Federal Reserve cuts its policy rates in September, to support the peso.

“Given the new projections on US policy rate, we now forecast a total of 50 basis points in cuts for the year to six percent, down from our previous projection of 75 basis points,” it said.

The bank revised its projection after the Fed kept its key interest rate at a range of 5.25 to 5.5 percent for the seventh straight meeting on June 12.

According to Metrobank, the Fed may slash policy rates by a total of 50 basis points to a range of 4.75 to five percent this year.

“Metrobank Research maintains its view that the Fed may begin cutting rates as early as its Sept. 18 meeting and by a total of 50 bps for the full-year to 4.75 to five percent as inflation is expected to have peaked by June and July, observable by August,” it said.

“Albeit there were upward adjustments in the Fed’s inflation projections, we still see no signs of inflation re-accelerating in the US,” it added.

On the other hand, the BSP’s Monetary Board kept borrowing costs steady for a fifth straight time during its May meeting, maintaining the key rate at 6.5 percent, the highest in 17 years.

From May 2022 to October 2023, the central bank has raised borrowing costs by 450 basis points to tame inflation, stabilize the peso and anchor inflation expectations.

The Philippine peso breached the 58 to $1 level last month and has been hovering near the record low of 59 to $1 amid hawkish remarks from officials of the US central bank.

The peso closed at 58.65 to $1 on Friday, down by seven centavos from its previous finish. There was no trading yesterday due to the observation of Eid Al-Adha as a regular holiday.

BSP Governor Eli Remolona Jr. earlier said the Philippine central bank can begin cutting rates as early as August, noting that the Monetary Board does not need to wait for the Fed to begin its own easing cycle.

The Monetary Board’s next policy meeting is on June 27.