MONETARY authorities could push through with a rate cut this Thursday, analysts said, despite inflation having breached target last month and better-than-expected second-quarter economic growth.

Eleven of the 15 outlooks compiled by The Manila Times predicted a 25-basis point easing on August 15 while the rest favored cuts later in the year. Three did not rule out the possibility of an off-cycle move before the next policy meeting on October 17.

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. had flagged an August rate cut as early as May, noting that risks to inflation — still likely to breach the 2.0- to 4.0-percent target in the second or third quarter — had moderated.

Consumer price growth did top 4.0 percent in July, hitting what Remolona described as a "slightly worse than expected" 4.4 percent and prompting the central bank chief to say a rate cut was now "a little bit less likely."

Remolona, who also said that an off-cycle cut was an option, told reporters that the BSP's policymaking Monetary Board could still ease this week should second-quarter gross domestic product (GDP) growth disappoint.

At 6.3 percent, however, the April-June GDP year-on-year growth turned out to be higher than the market consensus, raising the prospect that the BSP's benchmark rate — currently at an over 17-year high of 6.5 percent — would be kept unchanged for a seventh straight meeting.

For Security Bank Corp. chief economist Robert Dan Roces, a 25-basis point cut remains possible as quarter-on-quarter growth was just 0.5 percent, well below the 1.5-percent trend.

This, combined with core inflation having hit a 29-month low and a recent slowdown in investment, would support the case for easing this week, he added.

"However, the decision remains finely balanced against the strong annual GDP figure and inflation uptick, making the upcoming meeting a close call between maintaining current rates and implementing the expected cut," Roces said.

"The outcome will be particularly significant for the Philippines' economic outlook."

Manulife Investment Management Philippines fixed income head Jean de Castro also said that monetary authorities would want to support GDP growth, noting that the "underlying weakness in the Philippines' economic expansion is supportive of a rate cut."

"We expect that the BSP will have room for a looser monetary stance that can result in a 50 bps (basis points) rate cut for the rest of 2024," he added.

Chinabank Research said that second-quarter growth was mostly supported by base effects and "with inflation expected to ease, keeping real interest rates high may restrain the economy's growth prospects."

"Note that lower interest rates typically spur economic activity, particularly for capital formation," it added.

"With markets already fully pricing in a Fed (US Federal Reserve) rate cut in September, we think that the BSP could cut ahead of the Fed without risking a significant depreciation of the peso."

Bank of the Philippine Islands senior economist Emilio Neri said the GDP growth results showed a sustained "weakness in household consumption demand and sustained anemic performance of private construction," which could prompt the BSP to cut.

"Still, we won't be surprised if BSP waits for one or two more inflation prints before they decide to carry out their first 25-bps cut," Neri said.

"If not in August, they can do an off-cycle reduction in early September or during their scheduled meeting in October."

University of Santo Tomas Graduate School lecturer Emmanuel Lopez said bringing down interest rates would help stabilize the economy, and Philippine National Bank economist Alvin Arogo also said an easing would support economic growth.

The "combination of Executive Order 62 (which lowered rice import tariffs), downtrend in Vietnam rice prices, and favorable base effects should result in a significant slowdown in rice inflation in the coming months," Arogo noted.

For Metrobank chief economist Nicholas Antonio Mapa, the central bank could opt to cut on Thursday or via an emergency meeting on September 5.

"If BSP opts to pause ... we believe the rhetoric from both the BSP governor and finance secretary suggests that rate cuts may be carried via an 'emergency' policy meeting, potentially once the August inflation is reported in early September," he said.

"What is becoming very clear is that the BSP will not want to wait until its October meeting to provide some relief to the economy, with the governor working the proper timing for doing so."

Rizal Commercial Banking Corp. chief economist Michael Ricafort also said an August rate cut remained possible, especially since inflation is expected to ease this month.

While a recent typhoon could lead to an uptick in prices, this would be offset by the impact of lower rice import tariffs, he added.

Sun Life Investment Management and Trust Corp. economist Patrick Ella said the July inflation uptick was temporary in making the case for a rate cut this week.

Citi economist for the Philippines Nalin Chutchotitham also expects a 25-bps cut, pointing to easing core inflation and expectations of lower inflation moving forward.

"Recall that the BSP had forecasted a negative output gap throughout the policy horizon at the June policy meeting, and hence an early start of a gradual monetary easing is likely to support a steady path back to potential growth," Chutchotitham said.

With the Fed now expected to start cutting interest rates in September, UA&P School of Economics economist Victor Abola said the BSP can afford to cut rates this Thursday.

Bank of America research analyst Jojo Gonzales, however, expects the central bank to delay its easing to October, cutting by 25 bps, and follow this up in December.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion said the BSP could prioritize disinflation with GDP growth strong and choose to align its rate cut with the Fed's schedule by acting in October.

"An off-cycle BSP rate cut, if the Fed initiates rate easing in September, cannot be dismissed as well. We are expecting a modest 25-bps cut if the BSP does proceed with the off-cycle rate cut," he added.

Pantheon Macroeconomics economist Miguel Chanco said the Monetary Board would likely wait until inflation drops below 4.0 percent, which may not happen until September.

"Our core view now is that the BSP will cut by 25 bp in October, and 50 bp in December, assuming we're right about the Fed pursuing much larger cuts in Q4," he added.

Mitzie Irene P. Conchada of De La Salle University said that considering recent trends, the BSP might maintain its rates or implement a 25-bps cut before the year ends.

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