As inflation falls, the Bangko Sentral ng Pilipinas (BSP) will further lower key interest rates at its next monetary policy stance meeting in October, according to the think tank Capital Economics.
"The past week has brought more encouraging news on inflation, with August data showing that inflation fell back to target in South Korea and the Philippines," Capital Economics senior Asia economist Gareth Leather and economist placement student Harry Chambers noted in a Sept. 6 report.
The year-on-year rate of increase in prices of basic goods and services last month eased to a seven-month low of 3.3 percent, as food price hikes, especially of rice, slowed down. End-August headline inflation stood at 3.6 percent, and Capital Economics expects the rate to average 3.5 percent this year.
"We think inflation will remain low and stable across the region, helped by a combination of weak economic growth and falling food price inflation. With inflation low, growth struggling, and currencies rebounding, we expect more central banks to follow the lead of the Philippines by cutting interest rates over the coming months," Capital Economics said.
In particular, Capital Economics forecasted another BSP cut of 25 basis points (bps) in the overnight rate to 6 percent when the Monetary Board, the central bank's highest policy-making body, tackles interest rates on Oct. 17.
Since Capital Economics projected the BSP policy rate to end the year at 5.75 percent, another 25-bp cut may be coming at this year's last Monetary Board policy meeting on Dec. 19.
Last month, the BSP reduced the policy rate by 25 bps to 6.25 percent on the back of this year's within-target inflation expectations of three percent to four percent.
Following the BSP's lead as among the first Asian central banks to cut interest rates—even ahead of the US Federal Reserve, Capital Economics sees central banks in Pakistan, Sri Lanka and Vietnam easing this month, while Indonesia, South Korea and Thailand are expected to follow suit also in October.
Meanwhile, the Singapore-based United Overseas Bank (UOB) shares a similar view that the BSP has room to again slash policy rates.
"We keep our view that inflation will continue its downtrend and return to the mid-point of the BSP's 2-4 percent target range in the remaining months of the year. Favorable base effects, ongoing non-monetary intervention measures by the government and softening global commodity prices particularly crude oil are key factors sustaining the disinflation trend," UOB senior economist Julia Goh and economist Loke Siew Ting said in a Sept. 5 report.
UOB projected headline inflation to average 3.5 percent this year, a bit above the BSP's forecast of 3.4 percent.
"Both the disinflation trend back to the mid-point target and the commencing of global monetary policy easing cycle will allow the BSP to lower its interest rates for the second time in the fourth quarter of 2024 by 25 bps... [to] bring the overnight reverse repurchase rate to 6 percent by yearend," UOB said.