The Bangko Sentral ng Pilipinas (BSP) will likely keep the policy rate at 6.5 percent next week while the central bank navigates around a weak peso and a hawkish US Federal Reserve, global banks said.
"Another central bank that may be under pressure to review its rate stance next week is the BSP. There is little chance of a hike here, but Governor Eli Remolona's recent suggestion that the BSP would not need to wait for the Federal Reserve before cutting rates has been silenced by PHP weakness (probably as a direct result)," Dutch bank ING said in a June 19 report.
The Monetary Board, the BSP's highest policy-making body, will meet on June 27 to decide on key interest rates.
ING noted that month-to-date, the Philippine peso is the weakest currency in Asia-Pacific, so the BSP intervenes for support.
"More recent comments from other BSP officials have re-grouped behind the view that the BSP will be on hold until after the Fed. We are not looking for any change in BSP policy at (next week's) meeting, absent any sudden weakening in the PHP, which could follow any suggestion that front-running the Fed was being reconsidered. Let's hope not," ING said.
HSBC also expects the BSP to maintain the overnight borrowing rate next week before a small possibility of lowering rates before the US Fed, as Remolona had hinted.
"Despite the FX pressures mounting on the economy, we don't think the BSP will make any change in its tone. By keeping its 'less hawkish' stance, we expect the BSP to stand in contrast to the Fed's hawkish pause, suggesting that the BSP won't necessarily need to wait for the Fed," HSBC ASEAN Economist Aris Dacanay said in a June 19 report.
"It will be a bold move by the central bank, but we think the BSP finds confidence in something market players may have been sleeping on - the economy's fundamentals," Dacanay said.
He pointed to three developments that he said are making the BSP confident to slash interest rates before the Fed does, including a faster-than-expected recovery in the current account deficit and a promising foreign direct investment (FDI) outlook.
Dacanay also noted that the Philippines is the lone economy in ASEAN where the real policy rate differential with the US Fed hA surpassed the pre-pandemic level. "And this differential could widen further if the rice tariff rate cut pushes through."
But Dacanay said, “We still don't think the BSP will cut ahead of the Fed based on our baseline scenario of the Fed cutting as early as September this year."
"The current account, real policy rate differentials, and inflation will need to be much better than pre-pandemic levels if the BSP were to cut ahead. We continue to expect the BSP to cut its policy rate in the fourth quarter of 2024," he said.
"Nonetheless, we cannot sleep on the fact that the Philippines' monetary policy is becoming more independent from the Fed. If these fundamentals continue to improve and we see the Fed dot plot delaying its first rate cut, perhaps, to next year, the BSP might not necessarily need to follow suit. We expect the BSP next week to remind us that the economy is in a much better position today than it was in 2022 when the USD-PHP was at 59," he added.
Dacanay noted that the less hawkish stance communicated by the BSP in May left the peso "in much distress," depreciating to as low as 58.8 against the greenback.