Philippine central bank done with rate hikes; first cut seen in Q3 2024, same as Fed

By Anant Chandak

BENGALURU (Reuters) – The Philippine central bank will leave its key interest rate unchanged at 6.50% for a second time on Thursday thanks to cooling inflation and an improving currency, according to a Reuters poll that showed it would remain steady through Q2 2024.

While inflation eased to a 20-month low in November near the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% target, the peso posted its best monthly performance in a year last month following an off-cycle 25 basis-point hike at the end of October, lifting pressure for another increase.

However, amid risks inflation could rise again the BSP said monetary policy would need to be “sufficiently tight” until there was evidence of a sustained downtrend. That hawkish outlook meant rate cuts would not materialise until the third quarter of 2024.

All but one of the 24 economists in the Dec. 5-11 poll expected the central bank to leave its overnight borrowing rate unchanged at 6.50% on Dec. 14. One predicted a quarter-point hike.

“Barring significant upside surprises to inflation and a re-tightening in external financial conditions, the policy tightening cycle is likely complete,” said Jin Tik Ngai, EM Asia economist at J.P. Morgan.

“We expect growth to soften next year on the back of slower global growth and private investment. However, the BSP … is more sensitive to headline inflation instead of growth so unless a global recession or significant deflationary headwinds kick in, the central bank’s rate cuts will likely be measured.”

Median forecasts showed interest rates on hold until end-Q2 2024, followed by 50 basis points of cuts in each of the remaining two quarters of the year, the same as the U.S. Federal Reserve.

However, there was no consensus among those who provided expectations for the third quarter of next year with about half – 9 of 20 – expecting rates at 6.00%, four seeing them at 6.50% and three each at 6.25% and 5.75%. One predicted the policy rate at 5.50% by end-Q3.

“With risks to inflation still heavily tilted to the upside, it may still be too early to put rate cuts on the table. The economy will need time to pause to ensure that the BSP’s tight monetary stance filters through to the economy,” noted Aris Dacanay, ASEAN economist at HSBC.

“That being said, we expect the BSP to gradually begin its easing cycle after the Fed does its first rate cut in Q3 2024. Cutting at the same rate as the Fed will also mitigate the volatility of the USD-PHP given how wide the current account deficit still is for the Philippine economy.”

The peso has gained around 0.1% against the U.S. dollar so far this year while most other Asian currencies were still in negative territory.

(For other stories from the Reuters global economic poll:)

(Reporting by Anant Chandak; Polling by Veronica Khongwir; Editing by Jonathan Cable, Hari Kishan and Alison Williams)