S&P sees more BSP rate cuts in next 3 years

MANILA, Philippines — Debt watcher S&P Global Ratings expects more rate cuts from the Bangko Sentral ng Pilipinas (BSP) over the next three years, amid the US Federal Reserve’s shift to an easing cycle and soft economic growth in the Philippines.

In its Asia-Pacific Economic Outlook report for the fourth quarter, S&P said central banks in the region are unlikely to cut rates aggressively even after the Fed’s rate cut last week, except for China, Indonesia and the Philippines.

“We have not advanced our forecast for policy rate cuts in Asia compared to our June projections, with the exceptions of China, Indonesia and the Philippines,” Louis Kujis, chief economist for Asia-Pacific at S&P Global Ratings, said.

For the Philippines, S&P sees the country’s key interest rate at 5.5 percent in end-2024, down by 100 basis points from 6.50 percent in end-2023. This is lower than the debt watcher’s previous forecast of 6.25 percent given in June.

The outlook indicates that the BSP is expected to reduce policy rates by 75 basis points more in the fourth quarter following its 25-basis-point cut in August.

S&P also expects the BSP to slash the benchmark rate further by 125 basis points to 4.25 percent next year and by 25 basis points to four percent in 2026.

According to Kujis, the Philippines, New Zealand and Indonesia have been the exceptions when regional central banks refrained from lowering policy rates in the past few months.

While many central banks will likely start cutting borrowing costs in the fourth quarter, the rate cuts will be gradual as interest rate differentials with the US remain low compared to historic norms.

In a move to shift to a less restrictive monetary policy stance, the BSP reduced interest rates by 25 basis points in its meeting last month. This marked the central bank’s first rate cut in nearly four years.

Prior to the cut, the BSP kept its policy rate unchanged for six straight meetings since November 2023 to assess the impact of previous monetary actions. From May 2022 to October 2023, it hiked rates by 450 basis points to tame inflation.

Meanwhile, S&P nudged down its growth forecast for the Philippine economy this year to 5.7 percent from the 5.8-percent forecast it gave in June.

On the other hand, it hiked its growth projection to 6.2 percent next year from 6.1 percent previously.

“Growth elsewhere is largely tracking our expectations. We continue to see mostly solid expansion, particularly in the emerging markets of Asia,” Mr. Kuijs said.

The debt watcher anticipates a 4.4 percent growth in Asia-Pacific in 2024 and 2025, slightly down from the 4.5 percent projection three months ago.