ING: More BSP rate cuts after expected August inflation drop


Dutch financial giant ING expects the Bangko Sentral ng Pilipinas (BSP) to continue cutting interest rates, given favorable inflation expectations for August and beyond.

"Even though there is no evidence yet that the July tariff cuts have had much impact on consumer rice prices, the absence of any further increases should be enough to deliver a substantial decline in inflation in August," ING said in its "Asia week ahead report" dated Aug. 30.

ING estimated August headline inflation to have dropped to 3.3 percent year-on-year from 5.3 percent a year ago and 4.4 percent in July.

The Philippine Statistics Authority (PSA) will release its August consumer price index (CPI) report on Thursday, Sept. 5.

The BSP last Friday projected the annual rate of increase in prices of basic goods and services to have settled between 3.2 percent and 4 percent in August. This means that inflation would have returned to the government's targeted three percent to four percent band of manageable year-on-year price hikes conducive to economic growth, as in the seven months before July's spike.

"We calculate that overall prices remained flat from last month, with non-rice food prices a slight drag offsetting some increases elsewhere. We don’t expect a repeat of the housing-related increase last month," ING Asia-Pacific research head Robert Carnell, Greater China chief economist Lynn Song, and South Korea and Japan senior economist Min Joo Kang said in their report.

In particular, ING computed August's CPI to be 1.1 percent lower compared to July levels, reversing the 0.7 percent month-on-month increase posted last July.

Moving forward, ING sees further falls in inflation in September.

For ING, "the BSP made a brave decision to cut rates last month ahead of the US Fed, and these data should enable them to cut rates again soon without imperilling the Philippine peso."

The BSP last Aug. 15 pushed through with its plan to slash the key policy rate by 25 basis points (bps) to 6.25 percent, making it among the first Asia-Pacific central banks to inflict interest rate cuts.

As ING expects headline inflation to stabilize at about 3.5 percent next year, it anticipates the BSP to further reduce the overnight borrowing rate by 125-175 bps to end 2025 at around 4.5-5 percent.

The Monetary Board, the BSP's highest policy-making body, will again decide on the monetary policy stance during scheduled meetings on Oct. 17 and Dec. 19.

"Further [BSP] easing looks probable in 2025... This easing could sow the seeds for a more robust growth outlook in 2025," Carnell said in an Aug. 15 report.

ING sees the Philippines' gross domestic product (GDP) expanding by 5.3 percent in 2024 and 5.6 percent in 2025, below the government's growth targets of six percent to seven percent this year and 6.5 percent to 7.5 percent next year.

"We may need to lift our [GDP growth] forecast for 2025 to recognize the BSP's supportive policy shift," Carnell had said.