Gradual BSP rate cuts likely by Q3 in Philippines

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The Bangko Sentral ng Pilipinas (BSP) is expected to make gradual interest rate cuts starting in the third quarter of the year, according to global banking giant Citi.

Citi Economist for the Philippines Nalin Chutchotitham said the BSP Monetary Board would likely keep its interest rates unchanged in the first half of the year and may only start cutting rates by the third quarter.

'We maintain our expectation that the BSP will likely maintain its policy rates unchanged in the first half, given healthy economic growth prospects (except some weakness in goods exports), and that inflation is expected to be around the middle of its inflation target range,' Chutchotitham said.

Chutchotitham said the central bank is expected to slash key policy rates on Aug. 15 and deliver a total of 100-basis-point cuts in interest rates this year.

'We expect the first cut to come in the third quarter. The BSP is likely to deliver gradual reductions in 25-basis-point pace until its reaches 5.50 percent at end-2024,' she said.

The BSP's aggressive rate cuts, moving in tandem with the US Federal Reserve, brought the benchmark interest rate to 6.50 percent, the highest since the 7.50 percent recorded in May 2007.

'As of now, economic momentum appears strong enough to not warrant aggressive rate cuts. At such pace, the BSP will also have time to assess the market's reactions to the Fed's policy easing later this year as well, thus not adding unnecessary pressures on the peso,' Chutchotitham said.

Chutchotitham said the BSP expects some economic slowdown from monetary tightening near-term, but remained positive on medium-term growth prospects.

'Although officials refrained from signaling a clear dovish tilt, the BSP appears more comfortable with better-anchored inflation expectations,' she said.