CUTTING key interest rates in August will be too soon, and the Bangko Sentral ng Pilipinas (BSP) should wait until inflation slows even further or the US Federal Reserve (Fed) starts easing, analysts said.

They warned of the potential impact on the peso and said that monetary policy should remain tight until the country's fundamentals further improve.

The currency plunged to the P58:$1 level last month after BSP Governor Eli Remolona Jr. indicated that an August rate cut was likely. He doubled down on Thursday, saying that the policymaking Monetary Board was "somewhat more dovish" and that it was "on track to cut in the third quarter."

HSBC Global Research economist Aris Dacanay, however, said that "August is still a bit too early to loosen the monetary reins."

"We do not think inflation will be soft enough by the August meeting with the rice tariff rate cut needing time to work its way in reducing prices," he added.

"Monetary policy in the Philippines may break away from the Fed but more time is needed."

Dacanay still expects the Fed to cut its policy rate in September and anticipates that the BSP will follow in the fourth quarter of 2024.

ANZ Research said it does "not anticipate a rate cut this year" and added that "it is still early to communicate rate cuts for this year."

"Though both inflation and the trade deficit [on a trend basis] are improving, they are still at levels that warrant policy restrictiveness," it continued.

"Moving ahead of the US Fed or even in perfect lockstep can, in our view, exert depreciation pressure on the PHP (Philippine peso)."

The currency continues to trade in the P58:$1 level but gained for a second day on Friday to P58.61 after hitting an over 20-month low of P58:86 on Wednesday. Remolona on Thursday said the BSP had acted to prop up the peso.

ANZ Research said the Fed's having signaled that it would lower rates just once this year, in contrast to Remolona's having pointed to two 25-basis-point cuts, would put further pressure on the peso.

"Nonetheless, we do acknowledge that the odds of a rate cut have risen, even if it is accompanied by PHP weakness," it added.

Maybank Research, meanwhile, said it was keeping its view that the BSP would only cut in the fourth quarter after the Fed does.

"Sustained improvement in the inflation outlook would allow more scope to consider a less restrictive monetary policy stance," it noted.

"But for now, we continue to expect BSP to start cutting policy rate in the fourth quarter of 2024 by 25 bps (basis points), pending the impact of EO (Executive) 62 and AO (Administrative Order) 20 as well as USDPHP (dollar-peso) outlook."

EO 62 lowered tariffs on rice and other key commodities while AO 20 ordered the removal of nontariff barriers on agricultural imports in a bid to keep inflation under control.