HSBC expects easing monetary policy as rice prices decline

Filipinos do not need to worry about rising extra rice prices, as they are projected to fall due to better global supply, allowing the Bangko Sentral ng Pilipinas (BSP) to speed up the lowering of borrowing costs in the coming months, according to British banking giant HSBC.

Aris Dacanay, chief economist at HSBC, anticipates significant changes in monetary policy, with the BSP expected to implement two rate cuts by December, adjust big banks' reserve requirements, and introduce further rate cuts in early 2025.

“This sounds like a lot of monetary easing because it is,” Dacanay said.  

Dacanay explained that the shift occurred when the inflation outlook improved, especially with September's growth in consumer prices showing unexpectedly low results. 

It allowed the BSP to cut rates ahead of the US Federal Reserve, following the 20-percentage-point tariff reduction on imported rice in the second quarter of 2024.

India’s recent lifting of rice export restrictions is expected to reduce inflation for rice-consuming countries, with the Philippines likely to benefit the most, as rice makes up nine percent of its consumer price index (CPI) basket, HSBC Global Research added.

For Dacanay, this is a good time for rice prices to drop because they have not decreased since the tariff rates were lowered in July. With better global supply, retail rice prices should finally go down. 

This will allow the central bank to ease its monetary policy further, making it easier for lower and middle-income households to manage their budgets, which should increase overall spending, HSBC said.

With an improved inflation outlook, Dacanay expects the BSP to implement two 25 basis point (bp) rate cuts by December, lowering the year-end policy rate to 5.75 percent percent from 6.00 percent, and reducing it to 5.00 percent by the second quarter.

Moody’s Analytics, meanwhile,  expects that the BSP will follow its planned 250 basis point reserve requirement ratio (RRR) cut in October with an additional 200 bp reduction in the first quarter of 2025, lowering the RRR to 5.00 percent.

Looking ahead, the banking giant expects inflation to average 2.4 percent in 2025, while the overall economic growth for the year is expected to clock in at 6.4 percent. (Derco Rosal)