{"id":19118,"date":"2024-06-07T03:09:08","date_gmt":"2024-06-07T03:09:08","guid":{"rendered":"https:\/\/energybuzz.ph\/staging\/6915\/bsp-likely-to-keep-policy-stance-tight\/"},"modified":"2024-06-07T03:09:08","modified_gmt":"2024-06-07T03:09:08","slug":"bsp-likely-to-keep-policy-stance-tight","status":"publish","type":"post","link":"https:\/\/energybuzz.ph\/staging\/6915\/bsp-likely-to-keep-policy-stance-tight\/","title":{"rendered":"BSP likely to keep policy stance tight"},"content":{"rendered":"
\n

By Luisa Maria Jacinta C. Jocson, <\/b>Reporter<\/i><\/p>\n

THE BANGKO SENTRAL ng Pilipinas (BSP) is still likely to keep its policy settings tight even as in<\/span>f<\/span>lation settled within the target for a sixth straight month in May.<\/span><\/p>\n

\u201cThe BSP will likely keep its monetary policy restrictive in the f<\/span>irst half of the year as inf<\/span>lation risks (are) seen to persist in the near term,\u201d Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said in a statement.<\/p>\n

Policy easing may only be considered once in<\/span>f<\/span>lation stabilizes within the 2-4% tar<\/span>get in the third or fourth quarter, he added.<\/span><\/p>\n

\u201cWe continue to note the possibility of rate cut delay, given that the Philippine economy maintains a healthy pace of growth,\u201d Citi Economist for the Philippines Nalin Chutchotitham said.<\/p>\n

The central bank could cut rates as early as August, BSP Governor Eli M. Remolona, Jr. previously said.<\/p>\n

At its May meeting, the Monetary Board kept the benchmark rate steady at a 17-year high of 6.5%. Its next policy review is on June 27.<\/p>\n

The central bank raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023 to tame inflation.<\/span><\/p>\n

\u201cLooking ahead, although we think upward momentum may persist in the next two months given unfavorable base ef<\/span>fects, weaker peso and lingering food supply issues, we are still on track to achieve sub-4% as early as August,\u201d Mr. Neri said.<\/p>\n

This is in line with the BSP\u2019s expectation that inf<\/span>lation could breach the 2-4% target band until July amid base ef<\/span>fects.<\/p>\n

Headline inflation quickened to 3.9% in May from 3.8% in April, its fastest print in six months or since 4.1% in November. May also marked the sixth straight month that inflation settled within the 2-4% target range.<\/span><\/p>\n

\u201cSome upside risks to inflation remain, from potential adjustments of excise taxes and minimum wages. Hence, we continue to expect the BSP to start cutting policy rates only in August, once inf<\/span>lation has peaked around July,\u201d Ms. Chutchotitham said.<\/p>\n

The recent peso weakness may also delay the BSP\u2019s easing cycle, Ms. Chutchotitham said.<\/p>\n

\u201cAdditionally, we think in the event of high FX (foreign exchange) volatility, the BSP might also opt for delayed rate cuts to support the peso, especially if the Fed begins cutting later than July,\u201d she said.<\/p>\n

Mr. Neri said the timing and magnitude of the BSP\u2019s rate cuts would depend on the Fed. \u201cIf local in<\/span>f<\/span>lation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle,\u201d he said.<\/span><\/p>\n

Nearly two-thirds of economists are now predicting the Fed will cut interest rates in September, according to Reuters\u2019 May 31-June 5 poll, of<\/span>fsetting recent bearish supply news, Reuters reported.<\/p>\n

\u201cIf the BSP reduces its policy rate ahead of the Federal Reserve, a narrowed interest rate di<\/span>f<\/span>ferential increases the risk of currency depreciation, which could outweigh recent deceleration in food prices,\u201d Mr. Neri said.<\/span><\/p>\n

Mr. Neri said the peso may appreciate in the second half of the year, when the Fed is expected to begin easing.<\/p>\n

\u201cHowever, while a Fed cut might lead to peso appreciation, its gains are likely to be smaller compared to other emerging market currencies given the substantial current account def<\/span>icit of the country,\u201d he added.<\/p>\n

Mr. Remolona earlier said that the BSP does not need to \u201cwait\u201d for the Fed to cut before starting its own easing.<\/span><\/p>\n

Meanwhile, Citi expects 25-bp rate cuts by the BSP in August, October and December, followed by 25-bp rate cuts in February, May and August 2025.<\/p>\n

\u201cOur forecasts are based on the assumption that the BSP would adjust policy stance to ensure that it is not too tight to support economic momentum,\u201d Ms. Chutchotitham said.<\/p>\n

However, Mr. Neri said he expects the central bank to reduce rates by 50 bps this year.<\/p>\n

\u201cWe now expect a rate cut of around 50 bps this year, assuming the Federal Open Market Committee (FOMC) eases sometime in the second semester,\u201d he added. <\/span><\/p>\n

Meanwhile, Nomura Global Markets Research said it expects the BSP to only begin cutting rates in October, when inflation is \u201cmore entrenched within its 2-4% target.\u201d<\/p>\n

\u201cImportantly, amid an improving inflation outlook, we still think BSP is unlikely to start easing before the Fed (our US team expects a <\/span>f<\/span>irst cut in September), in order to avoid adding to recent FX pressures under BSP\u2019s <\/span>f<\/span>lexible market-determined FX regime, which we believe BSP is clearly still sticking to.\u201d<\/span><\/p>\n

Nomura expects a total of 50 bps of rate cuts this year and another 100 bps for next year, bringing the key rate to 5%.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

THE BANGKO SENTRAL ng Pilipinas (BSP) is still likely to keep its policy settings tight even as inflation settled within the target for a sixth straight month in May.<\/div>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[1],"tags":[5796,14644,3550,252,5406,18234,1177],"class_list":["post-19118","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-bsp","tag-bworldonline","tag-keep","tag-likely","tag-policy","tag-stance","tag-tight"],"yoast_head":"\nBSP likely to keep policy stance tight - Energy Buzz<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/energybuzz.ph\/bsp-likely-to-keep-policy-stance-tight\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"BSP likely to keep policy stance tight - 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