Metrobank Research said the jumbo 50-basis point (bps) cut by the US Fed last week “opens the door” for a 25 bps reduction in the local policy rate at the Oct 17 meeting of the Monetary Board. — Reuters
MANILA: The outsized interest rate cut by the US Federal Reserve (Fed) could boost the confidence of the Bangko Sentral ng Pilipinas (BSP) to slash borrowing costs again next month, a move that will seal the Philippines’ status as having one of the most dovish central banks in Asia.
In a commentary, Metrobank Research said the jumbo 50-basis point (bps) cut by the US Fed last week “opens the door” for a 25 bps reduction in the local policy rate at the Oct 17 meeting of the Monetary Board (MB).
If Metrobank’s forecast is correct, the BSP would ease ahead of the Fed again like it did in August, when the MB decided to trim the benchmark rate by 25 bps to 6.25%.
The remaining rate-setting meetings of the BSP for this year are scheduled for October and December, while the Fed will meet again in November and mid-December.
That said, Metrobank explained that a pause in October suggests that the BSP would only get a chance to adjust policy rates after two more projected Fed cuts.
“Metrobank Research maintains its view that the BSP will reduce its policy rate by a total of 75 bps in 2024, translating to a 25 bps cut each in both the October and December meetings,” it said.
“This would bring the BSP’s target reverse repurchase rate down to 5.75% by year-end. The interest rate differential between the BSP and the Fed would settle at 125 bps,” it added.
BSP Governor Eli Remolona Jr had said the market can expect a “calibrated” easing cycle while hinting at another 25 bps cut either at the October or December meeting of the MB.
Weeks after the BSP delivered its first rate reduction in almost four years, government data showed inflation slowed to 3.3% in August, easing back to within the 2% to 4% target range of the BSP.
The slower inflation last month, in turn, vindicated the central bank’s decision to trim rates early and ahead of the Fed.
The US central bank’s benchmark rate now sits between 4.75% and 5%, with Fed policymakers thinking the key rate would fall by another 50 bps by the end of this year.
Metrobank said it expects a total of 100 bps worth of Fed cuts in 2024 and another 100 bps for 2025. The recent 50 bps reduction will be followed by 25 bps cuts at each of the remaining Fed meetings in November and December, it added.
”This should bring the target Fed Funds Rate range to 4.25% to 4.50% by year-end,” it added. — The Philippine Daily Inquirer/ANN
