Philippine central bank to hold rates at 6.25%, cut in Q1 2024: poll

THE Philippine central bank will leave its key interest rate unchanged at 6.25 per cent for a third consecutive meeting on Thursday and keep it there for the rest of the year to assess the impact of previous hikes on inflation, a Reuters poll found.

Inflation in the country has steadily slowed to 4.7 per cent in July from a 14-year peak of 8.7 per cent in January, edging closer to the central bank’s target range of 2 per cent to 4 per cent, while core inflation, which strips out food and energy, has hardly budged. The economy contracted 0.9 per cent quarter on quarter in the second quarter.

The Bangko Sentral ng Pilipinas (BSP), which has hiked rates by 425 basis points since May 2022, reiterated last Thursday that it expected inflation to fall to within the target range in the fourth quarter.

All but one of the 20 economists in a Reuters Aug 7 to Aug 14 poll expected the BSP to leave its overnight borrowing rate unchanged at 6.25 per cent on Aug 17. One predicted a 25 basis point rate hike.

A strong majority of respondents, 15 of 19, forecast rates to stay at 6.25 per cent for the rest of the year, with three predicting a cut by end-2023 while one said rates will end 2023 at 6.5 per cent

“(A) rate cut will be BSP’s next move...however, the timing may be delayed if inflationary pressures prove sticky,” said Lavanya Venkateswaran, senior Asean economist at OCBC Bank.

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“The risks to our inflation forecast are skewed to the upside from higher food and fuel prices. Specifically, higher global rice prices will have a noticeable impact on inflation given the large weight of rice in the CPI basket.”

The BSP, which had previously followed interest rate hikes from the US Federal Reserve, has taken its own path since May, keeping rates on hold. But the Philippines peso has weakened about 2 per cent this year, and could lead to higher imported inflation.

Among the 17 economists who had a view on rates until the end of the first quarter of 2024, 12 forecast the BSP would cut rates to 6 per cent or lower in Q1 2024. The remaining five expected rates at 6.25 per cent. REUTERS