By DERCO ROSAL
While the Bangko Sentral ng Pilipinas’ dual rate cut could stimulate economic growth, UK-based banking giant HSBC warned of potential delays as borrowers may hesitate to take on new debt until the easing cycle is complete.
Following the recent 25-basis-point (bp) rate cut to 6.0 percent, the BSP plans to reduce its reserve ratio requirements (RRR) to 7.00 percent from 9.50 percent on Oct 25.
Aris Dacanay, chief economist at HSBC, expects the rate cut and RRR reduction to boost growth by encouraging borrowing and allowing banks to use more deposits for lending.
“But timing may be an issue, and we think there may be a lag in this boost,” Dacanay said.
“Potential borrowers know that there is more to the BSP's easing cycle. They may opt to hold their investments until the easing cycle comes to an end in 2025,” the economist explained.
HSBC, therefore, maintains its forecast that economic growth will be below 6.0 percent in 2024 but is expected to rise to 6.4 percent in 2025.
‘Surprising’ easing cycle
As HSBC expected, the BSP cut its policy rates for the second consecutive meeting, a contrast to August when BSP Governor Eli Remolona Jr. indicated only one rate cut for the remainder of 2024 to maintain flexibility amid potential inflation or a more aggressive US Federal Reserve.
“But neither of these happened,” Dacanay said.
In an unexpected move, the Fed initiated its easing cycle with a 50-basis-point cut, enabling the BSP to lower its policy rate this year, while the Governor indicated a cautious approach with ongoing 25-bp cuts, the economist said.
Michael Ricafort, chief economist at Rizal Commercial Banking Corporation (RCBC), said this reduction brought the local key interest rate down from its 17-year high of 6.50 percent, recorded in August 2024.
Dacanay said the BSP surprised markets with a slightly hawkish stance in 2025 and 2026 as it raised its inflation forecasts and indicated that inflation risks are now skewed upward due to higher global oil prices despite improved rice supply conditions.
Remolona noted that 100 basis points in rate cuts in 2025 are considered “dovish,” suggesting an end-policy rate of 4.75 percent if growth and inflation stay weak.
With this, HSBC maintains its policy rate forecasts, expecting a 25-bp cut by the BSP in the final rate-setting meeting of 2024, resulting in a year-end policy rate of 5.75 percent.
Additionally, HSBC expects the central bank to cut its policy rate by 25 bp in the first three Monetary Board (MB) meetings next year, likely ending the easing cycle in the second quarter of 2025 at a rate of 5.00 percent—above pre-pandemic levels.