ING: BSP likely to cut rates by 50-75 bps

MANILA, Philippines — Dutch financial giant ING Bank expects the Bangko Sentral ng Pilipinas (BSP) to cut borrowing costs by 50 basis points this year, as it will be easier to move ahead of the US Federal Reserve.

In a briefing yesterday, ING head of research and chief economist for Asia-Pacific Robert Carnell said he primarily sees the central bank only cutting rates by 25 basis points in October and December.

However, he said there is still a possibility that the BSP could start its easing cycle on Thursday, which could bring total rate cuts this year to 75 basis points.

“It’s certainly possible that they could ease this week,” he said. “But I think the optics will look a little bit better in a month’s time. There’ll also be that sort of safety in numbers at that stage, because we will have the Fed easing by then.”

He said that the BSP cutting rates in the fourth quarter would be a safer time to start policy easing. The US Fed is expected to slash borrowing costs by 50 basis points in September, 25 basis points in November and another 25 basis points in December.

“It’s a lot easier when everybody else is beginning to move,” Carnell said. “That’s the main restraint on any of the other central banks in the region. Most of them are waiting for the Fed.”

Based on their latest forecasts, ING Bank sees inflation at 2.5 percent by end-2024, significantly lower than the six percent average in 2023.

Even without the lower tariff rates for rice imports, Carnell said inflation would slow down in the coming months.

“What really matters for inflation is that rice prices don’t go up. So long as rice prices remain roughly where they are, then inflation is going to fall over the coming months,” he said.

The BSP has been keeping borrowing costs unchanged since it delivered its aggressive 450-basis-point hikes from May 2022 to October 2023, which brought the key interest rate to a 17-year high of 6.50 percent.

BSP Governor Eli Remolona Jr. earlier hinted that the Monetary Board is “less likely” to cut policy rates on Thursday due to the higher-than-expected July inflation.

However, the BSP will consider policy easing if economic growth “is unexpectedly weak” and inflation expectations remain anchored.

Remolona also said the BSP is always open to an off-cycle rate cut in case it keeps borrowing costs unchanged on Thursday.

According to Carnell, the central bank can cut borrowing costs in an off-cycle meeting as there is no reason why central banks should stick rigidly with their policy review schedules.

“But there is that slight risk of alarming the market. The market may think something must be wrong,” he said.

After Aug. 15, the BSP is scheduled to conduct two more policy reviews, on Oct. 17 and Dec. 19.