As inflation eases, more economists anticipate two additional interest rate cuts of 25 basis points (bps) each by the Bangko Sentral ng Pilipinas (BSP) in its remaining policy meetings for 2024.
In a Sept. 27 report, senior Asia economist Gareth Leather and assistant economist Harry Chambers at think tank Capital Economics forecasted September headline inflation to fall to 2.4 percent year-on-year, which, if realized, will be the lowest since October 2020's 2.3 percent.
Singapore-based United Overseas Bank (UOB) similarly projected 2.4 percent "on the back of lower fuel pump prices and contained impact of staggered electricity tariff hikes amid continued non-monetary intervention measures by the national government and favorable base effects," its senior economist Alvin Liew said also in a Sept. 27 report.
The consumer price index (CPI) report for September will be out on Friday, Oct. 4.
This downward inflation trend was Capital Economics' basis for its earlier forecast of one-quarter point BSP rate reduction when its highest policy-making body the Monetary Board decides on the policy stance in both October and December.
Oxford Economics, another think tank, also on Sept. 27 said disinflation or below-consensus inflation expectations in emerging markets like the Philippines would influence central banks' moves independently of the aggressive interest rate cuts expected from the US Federal Reserve.
Oxford Economics emerging market economist Callee Davis noted that the BSP as well as the central banks of Chile, Indonesia, Mexico and Peru had "pre-empted" the US Fed's cut in September. The BSP kicked off its monetary policy easing last August by reducing the key policy rate by 25 bps to 6.25 percent.
"Real activity growth estimates improved in August over July in economies where central banks had already started their easing cycle before end-August. These include Hungary, Romania, Mexico, the Philippines, Peru, Colombia, and Chile. This suggests that the timing and pace of rate cuts are starting to determine the shape of the recovery in individual emerging markets, with the boost to real activity more prevalent in earlier movers," Davis said.
As such, Davis said that "for the Philippines, we will also add a 25-bp cut in the fourth quarter of 2024, taking the cumulative decline in the policy rate to 50 bps in the quarter, compared with 25 bps in our current baseline."
UOB likewise expects the overnight reverse repo to be reduced by a total of 50 bps in the fourth quarter of this year through back-to-back BSP cuts on Oct. 17 and Dec. 19.
From an overnight borrowing rate of 5.75 percent in end-2024, both Oxford Economics and UOB forecasted cuts of 25 bps in each of the four quarters of next year to end 2025 at 4.75 percent.
Capital Economics also expects the BSP to slash interest rates by a total of 100 bps next year.
"Both the disinflation trend back to the mid-point target and the commencing of global monetary policy easing cycle will allow the BSP to further lower its interest rates in the fourth quarter of 2024 and beyond," UOB said in its latest quarterly global outlook report.
"We concur with the BSP's view that inflation will continue its downtrend and return to the mid-point of the BSP's two- to four-percent target range in the remaining months of the year. Favorable base effects, persistent non-monetary intervention measures by the government and softening global commodity prices particularly crude oil are key factors sustaining the disinflation trend," UOB said.
UOB noted that the BSP last August "cited inflation on a target-consistent path and soft household consumption growth in the second quarter of 2024 as main reasons justifying a calibrated shift to a less restrictive monetary policy stance."