Economists see rates staying high longer

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has shown bias toward a more restrictive policy and a higher-for-longer approach to interest rates after signaling the resumption of its tightening cycle as early as November amid upside risks to inflation, economists said.

Nalin Chutchotitham, Citi economist for the Philippines, said BSP Governor Eli Remolona Jr. has already given a higher-for-longer forward guidance with the likelihood of keeping rates unchanged in the first half of 2024 after resuming the tightening cycle by November this year.

“We push back our call for rate cuts in the first quarter to the second quarter of next year, and expect the policy rate to end 2024 at five percent instead of 4.50 percent earlier. We now expect policy rate to reach 4.50 percent in 2025 (previously 4.25 percent),” Chutchotitham said.

After maintaining a hawkish hold by leaving interest rates untouched for the fourth rate-setting meeting on Sept. 21, Remolona signaled a possible rate hike in November and said that it may not be the last.

According to Chutchotitham, the Philippines’ weaker external balances are also making the BSP more cautious and hawkish about cutting rates before the US Federal Reserve next year.

“We maintain our call for no further rate hikes, given concerns over economic slowdown, which are likely to help reduce core and services inflation further in the coming months,” Chutchotitham said.

While rice prices remained sticky, Chutchotitham said that crude oil prices are expected to ease in the fourth quarter and further into next year.

HSBC economist for ASEAN Aris Dacanay said the central bank has maintained a very hawkish tone after reiterating its readiness to hike interest rates further to arrest