EXCHANGE rate volatility, stable inflation and uncertainty over the US Federal Reserve rate cuts will likely keep emerging market (EM) central banks from lowering interest rates for now, Moody's said.
Despite having signaled an easing as early as next month, the Bangko Sentral ng Pilipinas (BSP) will be among those to "hold for longer," the debt watcher said in a report issued last week.
"[S]talling disinflation is causing a number of EM central banks to slow, pause or delay monetary easing, as is weakness or volatility in domestic currencies," Moody's said.
Latin American central banks, which were the first to start lowering interest rates last year, are particularly expected to slow the pace of easing along with others in emerging markets elsewhere.
"In Asia (excluding China), central banks are unlikely to start cutting rates anytime soon given largely stable inflation, solid economic growth and a related increase in credit access, coupled with uncertainty around the US Fed's policy path and exchange rate volatility risks," Moody's said.
The central banks of Malaysia, Thailand, Indonesia, Vietnam and India are expected to join the BSP in keeping interest rates higher for longer.
BSP Governor Eli Remolona, who first raised the prospect of an August easing in May, has continued to insist that the move is warranted given better-than-expected inflation in June.
Consumer price growth slowed to 3.7 percent in June, breaking four consecutive months of increases.
As for the impact on the peso, which fell to P58:$1 territory in May and continues to trade at that level, Remolona has said that the BSP has enough resources to address any volatility.
"In the Philippines, inflation is decreasing mainly because of a sharp decrease in the electricity charge in June although this is partially offset by a toll fee hike and currency depreciation," Moody's noted.
It expects inflation to average 3.8 percent this year and slow further to 3.4 percent in 2025, within the BSP's 2.0- to 4.0-percent target.
"In the Philippines, it is decreasing mainly because of a sharp decrease in the electricity charge in June, although this is partially offset by a toll fee hike and currency depreciation," Moody's said.
While the debt watcher expects Philippine economic growth to improve from 5.6 percent last year, its 5.9 percent and 6.0 percent forecasts for 2024 and 2025 fall below the 6.0-7.0 and 6.5-7.5 percent targets, respectively, for both years.
The country's growth will still be one of the highest in the region, next only to Vietnam (6.0 percent and 6.5 percent for 2024 and 2025) and India (6.8 percent and 6.4 percent).
Moody's, however, noted that the increase in growth would be higher for Vietnam (from 5.1 percent in 2023), Thailand (2.8 percent this year and 3.0 next year from 1.9 percent last year), and Malaysia (4.5 percent and 4.8 percent from 3.7 percent) given an export and domestic demand recovery.
Investments in the three countries have "also held up well given the relative strength of foreign direct investment," it added.
Growth in the Philippines and Indonesia, the debt watcher noted, is largely being driven by domestic demand.