BSP rate cuts unlikely this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is unlikely to slash interest rates this year as domestic inflation is still not low enough to warrant a rate cut, according to foreign economists.

In a report, Sanjay Mathur, chief economist for Southeast Asia and India at ANZ Research, said rate cuts in the Philippines are off the table this year.

“Inflation, although receding, is still running close to the upper bound of the official target range of two to four percent,” he said. “The outturns are still not low enough to permit rate cuts, but they have allowed the BSP to dial down its hawkishness.”

Inflation averaged 3.5 percent in the first five months, still within the BSP’s two to four percent target, despite rising to a six-month low of 3.9 percent in May.

After almost two years of tightening that led to a 450-basis-point jump in key policy rates, the BSP has kept the key rate at a 17-year high of 6.50 percent.

The Monetary Board is widely expected to keep borrowing costs unchanged on Thursday to help ease any possible inflationary pressures and support the peso against the dollar.

BSP Governor Eli Remolona Jr. earlier said the central bank could cut rates by 25 or 50 basis points this year, possibly as early as August, depending on the data.

Mathur said that talks of rate cuts from BSP officials have pushed the peso to near all-time lows against the dollar. However, there has been considerable improvement in the country’s current account balance, which should help the peso recover later this year.

The peso closed at 58.77 to $1 on Tuesday, up by three centavos from its previous finish.

DBS Bank chief economist Taimur Baig and chief economist for China Mo Ji likewise said that the BSP may not cut borrowing costs this year.

“Our baseline forecast is for the BSP to keep the rate on an extended pause this year,” Baig and Ji said.

“We expect the Philippine central bank to keep the benchmark rate at a 17-year high of 6.50 percent this week, with restrictive plans to keep inflation in check as well as support the currency,” they said.

DBS expects the BSP to cut rates by 25 basis points in the first quarter next year and two more 25-basis-point cuts in