By Komfie Manalo
Fitch Solutions unit BMI forecasts that the Bangko Sentral ng Pilipinas' (BSP) Monetary Board will cut key interest rates by 50 basis points (bps) in October this year as currency pressure eases.
In a report, the BMI said the "biggest barrier to monetary loosening is currency stability" and added, "The BSP kept its benchmark policy rate unchanged at its June 27 meeting. While this did not come as a surprise to us, we are revising our policy rate forecast to incorporate just one 50 bps cut in October at the earliest."
However, it expects a reduction of interest rates to follow the US Federal Reserve.
The MB, BSP's highest policy making body, kept policy rates at 6.5% for six consecutive meetings.
"We still think that the Bank's next move will be a cut, and it will materialize only when the Fed embarks on policy easing its own. The main difference from our last update is that we have revised our Fed outlook," BMI said.
It forecasts the Fed will reduce interest rates by 50 bps starting in September.
According to BMI, while BSP Governor Eli Remolona Jr. hinted at the possibility of a rate cut in August, "an early cut remains out of the question even if price pressures ease substantially."
BMI said the reduced rice tariff could help lower headline inflation by up to 1.3 percentage points, but it would take some time before the full impact is reflected in rice prices.
However, inflation is expected to settle at 3.2 percent this year, which is well within the government's target.
The Philippine peso has hovered at more than 58 to a dollar in the past weeks.
"Constant fluctuations in US interest rate expectations have led to much volatility in many emerging market currencies. And the peso is no exception. As such, the BSP will be extremely mindful of a pre-emptive return to monetary loosening, for fear of exacerbating weakness in the already weak peso," BMI said.
"This feeds into our expectations for the BSP to embark on its first cut only in October at the earliest. The monetary cycles of the Philippines and the Fed tend to track each other closely," it said.
However, it was said that the BSP may cut rates earlier than expected if inflationary pressures recede faster.
For 2025, BMI forecasts the BSP to ease policy rates by another 150 bps.