BSP seen 'very cautious' in easing

Bangko Sentral ng Pilipinas

PHILIPPINE monetary authorities will be wary about cutting interest rates despite recent pronouncements that an easing could start as early as August, analysts said.

"We continue to expect the Bangko Sentral ng Pilipinas (BSP) to be very cautious and to ease policy only after the US Federal Reserve," HSBC Global Private Banking said in a note.

The central bank will likely only start lowering key interest after the US Federal Reserve, which is expected to start doing so in September.

"It is only after the Fed cuts that BSP is likely to embark on its first 25 bp (basis point) policy rate cut," HSBC Global Chief Investment Officer James Cheo said.

The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes beginning May 2022 as inflation started surging.

The central bank's policymaking Monetary Board, which has held fire for the last five meetings, will again convene on Thursday next week.

Analysts expect that interest rates will continue to be kept unchanged.

ING Bank's Manila unit said there was little chance of a rate hike and that the BSP's indication that it may not wait for the Fed had been silenced by the peso's ongoing decline.

"The PHP (Philippine peso) is the region's weakest currency month-to-date and has needed BSP intervention to support it," the bank said.

"We are not looking for any change in BSP policy at this meeting, absent any sudden weakening in the PHP, which could follow any suggestion that front-running the Fed was being reconsidered," it added.

The currency has been trading in the $58:$1 level for a month since BSP Governor Eli Remolona Jr. said that an August rate cut was possible with the domestic inflation outlook having improved.

Lower interest rates, which would widen the differential with those of the Fed, would make Philippine assets less attractive.

In October 2022, the BSP's not matching aggressive rate hikes by the US central bank led to the peso hitting a record low of P59 to the dollar.

The currency weakened to an over 19-month high of P58.80:$1 on Friday.

On Thursday, BSP Senior Assistant Governor Iluminada Sicat said the peso's movement was not volatile and that the weakness was in line with movements in other regional currencies.

She said the peso was continuing to be influenced by the broad dollar strength and added that the BSP was ready to act, and had ample resources, to address any volatility.