BY DERCO ROSAL

German financial services giant Deutsche Bank expects the Bangko Sentral ng Pilipinas (BSP) to continue easing gradually but warns that the US presidential election and trade policy changes could delay further rate cuts.

“A key risk to our view is the US presidential election and resultant trade policy outlook, where any market volatility that follows could delay further rate cuts by the BSP,” economists of Deutsche Bank Asia-Pacific (APAC) Research said. 

Observers say the current administration of US President Joseph “Joe” Biden has turned mildly protectionist and this may be continued by his Vice President Kamala Harris in case she wins the presidency as the Democratic Party bet.

Republican Party candidate and former US president Donald J. Trump had also pledged to protect American businesses by slapping higher tariffs on imported goods, especially from China — which could spur inflation in the US.

In its weak-ahead report, the Deutsche Bank reported that the BSP's 25-basis-point cut to six percent met market expectations while noting that inflation risks for 2024 are lower but could rise in 2025-2026 due to potential hikes in electricity rates and minimum wages.

“We expect BSP to continue its path of gradual easing of 25bps for each subsequent meeting, terminal at 5.0 percent by mid-2025, to support domestic demand,” the bank said.

The reason behind this was the BSP’s revision of its 2024 inflation forecast down to 3.1 percent while raising its forecasts for the next two years to 3.3 percent and 3.7 percent, respectively.

Meanwhile, citing consensus forecasts of its panel of economists, Barcelona-based think tank Focus Economics said they expect "over 100 basis points of rate cuts in 2025" on top of the forthcoming reduction in December.

ING analyst Deepali Bhargava said they expect another 25-bp rate cut in December due to low inflation and sluggish gross domestic product (GDP) growth.

“We expect CPI inflation to average 2.9 percent, well below the midpoint of the target band in 2024,” Bhargava said.

“The Philippines should benefit from improving global food supplies and lower rice prices following India’s lifting of its export ban on rice,” the economist also said. 

Bhargava pointed out that the real policy rate, which is over 4 percent, has reached its highest point “at a time when GDP growth is expected to remain below the government’s target.”