THE Bangko Sentral ng Pilipinas (BSP) will likely have little choice but to only start cutting interest rates after the US Federal Reserve (Fed), analysts said, given the likelihood of a further weakening of the peso.

"With no dovish signals by the Fed, we think the space for the BSP to cut as early as August without leading to much volatility in the peso is limited," HSBC Global Research economist Aris Dacanay said on Thursday.

The US central bank on Wednesday again kept interest rates unchanged and signaled that it was likely to cut just once this year instead of the three expected in March with inflation still above target.

Analysts subsequently lowered expectations of a September cut, although this remains the most likely, while others have said that the Fed could delay easing until December.

The BSP, in contrast, has indicated that it could start lowering key rates as early as August given improvements in the domestic inflation outlook.

This has led to pressure on the peso, which has fallen to 19-month lows and is currently trading in the P58:$1 level.

Inflation, which rose for a fourth straight month in May to 3.9 percent, is again threatening to breach the 2.0- to 4.0-percent target. It is, however, expected to end the year within target, and the BSP last month lowered its risk-adjusted forecast for 2024 to 3.8 percent from 4.0 percent.

"Although this isn't our baseline scenario, what would open the opportunity for the BSP to cut ahead is if inflation precipitously and immediately eases before the August meeting," Dacanay said.

"And this will be [a] function of when the tariff rate cut on rice will be implemented and how fast the policy transmission will be," he added.

Food inflation, particularly for rice, has been blamed for the current inflation uptrend. The National Economic and Development Authority (NEDA) Board, chaired by President Ferdinand Marcos Jr., last week slashed already-lowered rice duties to 15 percent from 35 percent.

It has yet to be implemented, however, as the move will require Marcos to issue an executive order. NEDA Secretary Arsenio Balisacan earlier this week said that overall consumer prices will likely start stabilizing in September.

For Dacanay, the BSP's policymaking Monetary Board will likely only start cutting in the fourth quarter, and only after the Fed, despite its current stance.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., also said that the central bank was likely to be mindful of the impact a rate cut would have on the peso.

The currency hit a record low of P59 to the dollar in late 2022 after the BSP failed to match aggressive Fed rate hikes and a renewed widening of the interest rate differential could again trigger exchange rate volatility.

Ricafort said the BSP would likely match any Fed rate cuts later in 2024 and in 2025 to maintain the current 100-basis-point interest rate differential.

"Any local policy rate cut would also be a function of inflation and also a function of the behavior of the US dollar/peso exchange rate that has an effect on import prices and overall inflation," he added.

The central bank's benchmark rate currently stands at 6.5 percent, the highest since 2007, after 450 basis points of hikes starting in May 2022 as inflation surged in the wake of Russia's invasion of Ukraine.

Bank of the Philippine Islands senior economist Emilio Neri said the BSP could still cut ahead of the US central bank but added that it would likely only start doing so in the fourth quarter.

"Even if the peso comes under heavier-than-usual pressure, BSP can cut well ahead of the Fed," he noted, adding that "as long as Philippine headline inflation prints continue to surprise on the downside, BSP can begin cutting already."

"If June and July inflation prints surprise, they can cut as early as August. An RRR (reserve requirement ratio) cut may also be delivered before year-end."

Nonetheless, Neri believes the central bank will only begin reducing rates by 25 basis points in October.

BSP officials were not immediately available for comment. The Monetary Board will next meet to discuss policy on June 27.