Philippine central bank to hold rates at 6.25%, cut in Q1 2024: Reuters poll

By Veronica Dudei Maia Khongwir

BENGALURU (Reuters) – The Philippine central bank will leave its key interest rate unchanged at 6.25% for a third consecutive meeting on Thursday and keep it there for the rest of the year to assess the impact of previous hikes on inflation, a Reuters poll found.

Inflation in the Southeast Asian country has steadily slowed to 4.7% in July from a 14-year peak of 8.7% in January, edging closer to the central bank’s target range of 2-4%, while core inflation, which strips out food and energy, has hardly budged. The economy contracted 0.9% quarter-on-quarter in the second quarter.

The Bangko Sentral ng Pilipinas (BSP), which has hiked rates by 425 basis points since May 2022, reiterated last Thursday that it expected inflation to fall to within the target range in the fourth quarter.

All but one of the 20 economists in a Reuters Aug. 7-14 poll expected the BSP to leave its overnight borrowing rate unchanged at 6.25% on Aug. 17. One predicted a 25 basis point rate hike.

A strong majority of respondents, 15 of 19, forecast rates to stay at 6.25% for the rest of the year, with three predicting a cut by end-2023 while one said rates will end 2023 at 6.50%.

“(A) rate cut will be BSP’s next move…however, the timing may be delayed if inflationary pressures prove sticky,” said Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank.

“The risks to our inflation forecast are skewed to the upside from higher food and fuel prices. Specifically, higher global rice prices will have a noticeable impact on inflation given the large weight of rice in the CPI basket.”

The BSP, which had previously followed interest rate hikes from the U.S. Federal Reserve, has taken its own path since May keeping rates on hold. But the Philippines peso has weakened about 2% this year, and could lead to higher imported inflation.

Among the 17 economists who had a view on rates until the end of Q1, 2024, 12 forecast the BSP would cut rates to 6.0% or lower in the first quarter of 2024. The remaining five expected rates at 6.25%.

(Reporting by Veronica Dudei Maia Khongwir; Polling by Milounee Purohit; Editing by Hari Kishan, Ross Finley and Sharon Singleton)