The Bangko Sentral ng Pilipinas (BSP) is expected to implement fewer rate cuts in 2024, according to a report by BMI Research. The report stated that the weak peso would act as a constraint to preemptive loosening of monetary policy.
BMI Research revised its projection, now expecting the BSP to reduce its key rate by a total of 50 basis points (bps) starting in September, down from the previous projection of a 75-bp cut.
The report noted that the BSP is likely to align its rate adjustments with the US Federal Reserve, which is expected to begin cutting rates in September. This alignment is to prevent excessive pressure on the peso.
Governor Eli Remolona Jr. hinted at the possibility of a 50 bps rate cut this year, with the first 25-bp cut potentially in August. Despite the weak peso, the Monetary Board stressed the possibility of a less restrictive monetary policy stance if the inflation outlook improves.
BMI Research identified the fluctuating peso as a major obstacle to monetary easing, attributing the volatility to changes in US interest rate expectations.
The report concluded that the BSP would proceed cautiously with rate cuts to avoid further weakening the peso, predicting the first cut to occur in October at the earliest to align with the Fed’s monetary cycle.
