'Less hawkish': BSP says rate cut possible in August

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to keep policy rates for the fifth straight meeting but hinted at the possibility of easing rates as early as August as inflation is now expected to come in slower than earlier anticipated.

In a briefing on Thursday, BSP Governor Eli Remolona Jr. said the Monetary Board kept the target reverse repurchase (RRP) rate at 6.5%, the overnight deposit rate at 6.0%, and the overnight lending facility rate at 7.0%.

This is the highest in 17 years since the benchmark rate was kept at 7.5% in May 2007.

This comes as the risk-adjusted inflation outlook was revised downward to 3.8% from the 4.0% projection in April, citing higher transport charges, food prices, electricity rates, and global oil prices.

The baseline inflation forecast for the year was also upgraded to 3.5% from 3.8% during the previous policy meeting in April.

“The Monetary Board deems it appropriate to ensure sufficiently tight monetary policy settings until inflation settles firmly within the target range. A restrictive policy stance will also help keep inflation expectations anchored amid a possible buildup in upside risks to future inflation,” Remolona said.

“The Monetary Board reiterates its support for the national government’s non-monetary measures to address persistent supply-side pressures on food prices and to prevent further second-round effects,” he added.

Inflation clocked in at 3.8% in April, reflecting the third straight month of acceleration and bringing the first-quarter average to 3.3%. The latest print compares with the 3.7% in March and the 6.6% in April 2023, and is also the fastest since the 3.9% in December 2023.

In the same briefing, Remolona said the BSP is now ''less hawkish'' and hinted at the possibility of cutting rates as early as August, with the latest economic growth data pointing to “largely intact” domestic output growth in the medium term.

“We are actually somewhat less hawkish than before, which means we could ease or cut rates in the third quarter or fourth quarter of this year, so the second half of this year,” he said.

“Yes, possibly by August of this year,” he added, when asked if this could come on August 15, 2024, the only policy meeting scheduled in the third quarter.

The BSP also hiked its inflation outlook for 2025—the baseline to 3.3% from 3.2% previously and the risk-adjusted forecast to 3.7% from 3.5%—taking into account higher oil prices and the peso depreciation, among others.

The central bank has raised key policy rates by 450 basis points since May 2022 in a bid to tame inflation, which averaged 6.0% in 2023, higher than the target range of 2.0% to 4.0%. —VBL, GMA Integrated News