BSP to keep 6.5% policy rate this week -- Moody’s

Moody’s Analytics said the Bangko Sentral ng Pilipinas (BSP) is expected to hold its key rate steady at 6.5 percent during its monetary policy meeting on Thursday, May 16. 

In its latest Economic View: Asia Pacific commentary, the global credit rating agency noted that with the inflation path likely to exceed the two percent to four percent government target in the next months due to dry weather condition, the BSP’s Monetary Board “will likely stand pat on rates this month” and may start cutting the policy rate in the third quarter yet.

While inflation for the month of April of 3.8 percent was within the target range, Moody’s said the BSP  could “bump around the upper limit over the next few months as dry weather hits food harvests.”

“At the earliest, rate cuts could begin next quarter, which would ease the pressure on households,” said Moody’s.

British bank HSBC in its own commentary said if or when inflation eventually breaches target, “we expect this breach to be brief” and “headline inflation will likely return to within the central bank's target band as early as August or September of this year.”

“All in all, there is no pressure for the Bangko Sentral ng Pilipinas to hike its policy rate further at the Monetary Board (this week). We do not think there is a need to hike to support the peso and prevent any FX-induced inflation nor is there a need to tighten the monetary reins further to tame inflation. All is well, in our view,” said HSBC.

It reiterated that BSP is not in a rush to cut policy rates despite the weaker-than-anticipated first quarter economic growth of 5.7 percent.

“Yes, 1Q 2024 growth came in weaker than we expected at 5.7% y-o-y. But all things considered, this growth rate does not warrant any early policy rate cut. Surprisingly, exports continue to outperform. In fact, the PMI new orders index shows that demand moving forward remains robust. With growth intact, the BSP continues to have the luxury to keep its monetary stance tight while the Fed maintains a more hawkish tone. We only expect the BSP cut after the Fed in 4Q 2024,” added HSBC.

As of its April 8 Monetary Board policy meeting, the BSP adopted a risk-adjusted inflation forecast for 2024 of four percent versus the previous estimate of 3.9 percent, but maintained the 3.5 percent projection for 2025.

Given the slight uptick in the April inflation from March’s 3.7 percent, the BSP could keep the current four percent inflation forecast for 2024 when it meets this Thursday for its next monetary policy meeting.

The key rate is unchanged at 6.5 percent since October 2023. BSP Governor Eli M. Remolona Jr. has firmly signaled that a rate cut will only be considered in the last quarter of 2024 or the first quarter of 2025, following a similar move from the US Federal Reserve.