PHILIPPINE monetary authorities will likely keep key interest rates unchanged for a sixth straight meeting this Thursday, analysts said, pointing to the peso's current weakness and minimal risks of inflation breaching target.
During its last meeting on May 16, the Bangko Sentral ng Pilipinas' (BSP) policymaking Monetary Board maintained the benchmark rate at a 17-year high of 6.5 percent, noting that inflation had yet to settle firmly within the 2.0- to 4.0-percent target.
The rate has been rising for the past four months and hit 3.9 percent in May amid elevated food and utility costs. The BSP has warned that inflation could top 4.0 percent but expects it to average at a within-target 3.8 percent, risks considered, this year.
BSP Governor Eli Remolona Jr. in May raised the prospect of an August easing — this would be the next meeting after this Thursday — but with the US Federal Reserve seen doing so only in September or even in December, this has led to pressure on the peso.
Security Bank Corp. chief economist Robert Dan Roces said the peso's weakness — the currency has been trading in the P58:$1 level for a month and dropped to P58.80 against the dollar on Friday — strongly argued for keeping interest rates high.
"A pause in rate changes would provide BSP with an opportunity to assess the impacts of global monetary shifts while addressing domestic economic vulnerabilities linked to currency performance and delayed disinflation," he said.
Emmanuel Lopez, dean of the Colegio de San Juan de Letran Graduate School, pointed to continued increases in fuel and food prices and the peso's fall as reasons for keeping interest rates steady.
HSBC Global Research economist Aris Dacanay also expects policy rates to remain unchanged but added that monetary authorities were likely to again indicate a willingness to start cutting as soon as possible.
"By keeping its 'less hawkish' stance, we expect the BSP to stand in contrast to the Fed's hawkish pause, suggesting that the BSP won't necessarily need to wait for the Fed," he said.
"It will be a bold move by the central bank, but we think the BSP finds confidence in something market players may have been sleeping on — the economy's fundamentals."
Jean de Castro, head of fixed income at Manulife Investment Management Philippines, also pointed to near-term inflation risks and a weak peso as reasons for a June pause.
An August cut remains likely, she added, although this could be delayed to October.
"With the National Economic and Development Authority Board's recent decision to reduce the import duty on rice to 15 percent from 35 percent until 2028, the BSP now has more room to ease policy rate," de Castro said.
Union Bank of the Philippines chief economist Ruben Carlo Asuncion, meanwhile, said any potential BSP action was likely to be closely tied to the Fed's decisions, noting some central banks' reluctance to reduce rates preemptively.
"Another key factor is the stable GIR (gross international reserves) level as a very comfortable cushion for the BSP moving forward responding to volatility in foreign exchange markets," he added.
Pantheon Macroeconomics economist Miguel Chanco, for his part, said the slight risk that inflation might temporarily exceed the target range this month could prompt another pause on Thursday.
"Our core view is that once this passes, and assuming no new price shocks, then the [Monetary] Board should have the all-clear to start cutting in August," he said.
Philippine National Bank economist Alvin Arogo said that monetary authorities were likely to pause anew this Thursday and August given rising inflation, with 25-basis point (bps) rate cuts potentially to follow in October and December.
"This assumes that inflation will sustainably settle within the 2-4 percent target range starting August, the likelihood of which has been bolstered by the rice tariff reduction," he said.
"We assume that the Fed will ease by 25 bps each in September and December. We also believe that the BSP should not cut rates ahead of the Fed or else risk further exchange rate weakness.".
For Rizal Commercial Banking Corp. chief economist Michael Ricafort, the central bank will likely match any Fed rate cut later this year to maintain healthy interest rate differentials.
The peso fell to a record P59:$1 in October 2022 after the BSP failed to match aggressive Fed rate hikes aimed at tempering inflation.
Ricafort added that "any local policy rate cut would also be a function of the 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."
Sun Life Investment Management and Trust Corp. economist Patrick Ella also argued that domestic inflation and Fed policy moves would be crucial in the BSP's likely decision to keep the policy rate unchanged on Thursday.
The US central bank, during its last policy meeting on June 11-12, kept interest rates steady at 5.25-5.5 percent with inflation yet to return to target and the economy still going strong.
It signaled just one cut this year instead of the three indicated during its March meeting.
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