Economists mixed on BSP’s next move

MANILA, Philippines — While most economists expect the Bangko Sentral ng Pilipinas to cut interest rates by 25 basis points at its meeting on Thursday, some believe the Monetary Board – the BSP’s policy-setting body – will keep rates unchanged.

UnionBank chief economist Ruben Carlo Asuncion said the BSP may delay its widely anticipated rate cut as gross domestic product (GDP) growth accelerated to 6.3 percent year-on-year in the second quarter.

“The BSP may decide to cut (in October), in line with the (US) Fed’s schedule,” he said.

Asuncion also said an off-cycle rate cut from the Philippine central bank would be possible if the Federal Reserve starts cutting borrowing costs in September.

“We are expecting a modest 25-basis-point cut if the BSP does proceed with the off-cycle rate cut,” Asuncion added.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said inflation rising to 4.4 percent in July and breaching the four percent upper limit of the BSP’s target would be enough for the Monetary Board to push the hold button.

“I suspect that this breach will be enough to continue keeping the Monetary Board’s hand, so we’ve had to delay our forecast for the first 25-basis-point rate cut to the October meeting, from this month,” he said.

Chanco noted that while there are some growth concerns on the second-quarter GDP data, the headline print would likely add more weight for a continued hold.

The BSP would likely stand pat due to the higher-than-expected inflation print, Sarah Tan, economist at Moody’s Analytics, said.

“Even though we expect July’s inflation reading to be the peak, the outlook for Philippine inflation has become a little murkier of late,” she said. “Damage caused by Typhoon Carina could linger over the coming months and electricity rates are also expected to tick up.”

She also noted that while the second-quarter GDP print is not ideal, it could still provide the Monetary Board some room to keep borrowing costs unchanged.

On the other hand, Nomura chief ASEAN economist Euben Paracuelles and analyst Nabila Amani said the BSP is expected to cut its key interest rate by 25 basis points to 6.25 percent on Aug. 15 due to a more dovish US Fed.

“We were previously arguing that the BSP is unlikely to start cutting before the Fed,” they said in a report.

“But with foreign exchange pressures already easing as the Fed has turned more dovish (our US team now expects three 25-basis-point Fed cuts this year versus two before), we think this opens the door to BSP adjusting its policy settings earlier.”

The second quarter GDP data also supports a rate cut in August, Paracuelles and Amani said.

“Consumer durables and business investment, which are arguably sensitive to high interest rates, were the main source of the drag to headline GDP growth and therefore support the case for BSP to move to a less restrictive stance, provided the inflation outlook is improving and the external backdrop supportive,” they said.

Nomura also sees the BSP cutting by 25 basis points in October and December, bringing the cumulative rate cuts to 75 basis points this year. It also forecasts another 75 basis point rate cuts in the first half of 2025 amid lower headline inflation.

However, there is a 40 percent chance of BSP staying on hold on Thursday if it waits for more inflation data in the coming months, they said.

Security Bank chief economist Robert Dan Roces said waning growth momentum would prompt the BSP to cut borrowing costs by 25 basis points on Aug. 15, as GDP growth fell to 0.5 percent on a quarterly basis from the 1.5 percent historical trend.

“This growth concern, combined with core inflation moderating to a 29-month low and the recent investment slowdown, supports the case for easing,” he said.

Core inflation eased to 2.9 percent in July from 3.1 percent in June and 6.7 percent a year ago.

“Although July’s headline inflation showed an upside surprise, we believe growth concerns will take precedence. This forward-looking approach aims to sustain economic momentum and buffer against potential headwinds,” Roces said.

“However, the decision remains finely balanced against the strong annual GDP figure and inflation uptick, making the upcoming meeting a close call between maintaining current rates and implementing the expected cut,” he added.

Meanwhile, Metrobank chief economist Nicholas Mapa said the BSP would either cut rates by 25 basis points this week or via an emergency meeting on Sept. 5.

“On face value, cutting rates while inflation is above target and growth is robust would not be likely,” he said.