The Bangko Sentral ng Pilipinas (BSP) is expected to cut interest rates by the second quarter of 2024 provided that inflation remains on a downtrend despite price pressures on rice and the holiday season.

In its recent commentary, Manulife Investment Management and Trust Corp., a subsidiary of insurance firm Manulife, said the consensus outlook on inflation is for its continued decline.

This comes after the rate of increase in the average prices of goods and services typically purchased by consumers further eased to 4.1 percent in November from 4.9 percent in October.

This marked the second consecutive month of inflation slowdown and is also the lowest print in 20 months or since March 2022.

Manulife head of equities Mark Canizares said if the trend continues, the interest rate policies of the BSP would likely be kept stable.

To quell inflation concerns since last year, the central bank has hiked rates by a total of 450 basis points to settle at 6.50 percent, the highest in Asia.

'We could look further ahead for a more pro-growth monetary stance in 2024,' Canizares said.

Manulife head of fixed income Jean de Castro, for her part, said the BSP would likely keep its monetary policy tight and may consider cutting only by the second or third quarter of 2024.

De Castro said the BSP would only do so if inflation continues to decelerate. For now, the BSP is still seeing risks tilted to the upside.

'The moderating oil prices after peaking in September and the stronger peso will contribute to the continuous decline in inflation,' de Castro said.

On the downside, de Castro warned that inflation could still spike anew especially as the rate has been mainly driven by volatile components such as rice and oil prices.

Moving forward, she noted that factors that will affect the direction of inflation include weather conditions, the severity of El Nino, supply of rice in the international market, and geopolitical developments in the Middle East, among others.

Apart from rice, Canizares said Christmas spending could also put upward pressure on inflation.

'Christmas is quite a significant spending season for the Philippines and could put upward pressure on prices monthly,' he said.

Further, de Castro urged the government to continue monitoring expansion components as reliance on government spending to fuel growth is not sustainable.

This as elevated inflation and the relatively still high interest rate environment will continue to pose challenges to economic growth.

'Despite a rebound in the third quarter, household consumption has steadily declined every quarter since last year as high inflation erodes households' purchasing power,' de Castro said.

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