THE Bangko Sentral ng Pilipinas (BSP) could still lower interest rates Thursday next week, the research unit of China Banking Corp. (Chinabank) said, with inflation expected to continue easing amid surprisingly strong economic growth.
Ahead of Thursday's announcement that the economy had grown by 6.3 percent in the second quarter, BSP Governor Eli Remolona Jr. told reporters that a rate cut on August 15 had become "a little less likely" after inflation hit 4.3 percent in July breached the 2.0- to 4.0-percent target.
He added that if growth turned out to be weaker than expected — the market consensus was 6.0 percent, a rate cut remained possible.
An off-cycle adjustment is also an option, Remolona said.
Some analysts have said that monetary authorities could again keep interest rates unchanged next week but Chinabank Research said "there is still a case for the BSP to start cutting rates at its upcoming policy meeting next week."
It argued that base effects had contributed to the rise in economic growth and that the central bank did not need not keep interest rates high since these could impede the economy's growth prospects.
The BSP benchmark rates currently stand at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes beginning May 2022.
Chinabank Research said that lower interest rates "would also provide additional momentum for the economy to counter headwinds."
It added that the economy would need to expand by at least 6.0 percent in the second half to reach the government's target range of 6.0 to 7.0 percent.
"The latest GDP print offers optimism on the economy's growth trajectory going forward, especially with expected boosts from lower inflation, a robust labor market and the BSP's imminent monetary easing," Chinabank Research said.
"However, we also note that there are still risks to the growth outlook such as the potential emergence of La Niña," it added.
It noted that agriculture had weighed on second-quarter economic growth due to the droughts and dry spells brought by El Niño.
La Niña, which is characterized by heavy rains and floods, could continue to challenge farm output.