US and Philippine central banks continue 'pause' on rate hikes

The Bangko Sentral ng Pilipinas (BSP) joined its American peer, the US Federal Reserve (the “Fed”), in deciding to do nothing with interest rates yesterday. The Fed was the first to act, electing to pause for the third straight cycle, and guiding the market to expect at least three interest rate cuts in FY24. According to this CNBC article, the number of cuts is less than the market was pricing in, but more than the Fed had been previously talking about. The BSP then did the expected, which was to decide to do nothing. The BSP said that the government’s “non-monetary interventions will remain crucial” in FY24 to “sustain the disinflation process”, and that the “the Monetary Board continues to see the need to keep monetary policy settings sufficiently tight to allow inflation expectations to settle more firmly within the target range”.

MB BOTTOM-LINE: I’ve seen a ton of blue checkmark accounts on X talking about how the Fed’s sudden willingness to flip from hawkish scold to dovish flirt is just part of their election cycle politics, and while this line of thinking has some basis in reason (rate cuts would benefit the economy, and a hot economy is good for electoral politics), it just doesn’t align with all the unpopular moves that the Fed has made over the past year. Maybe the Fed has seen something in the data that has allowed it to soften its stance and consider talking about 2024 cuts. The more interesting question is on our side, where the BSP performed the same action (smashed that pause button) but with background music that was a lot less peaceful and serene. The BSP’s focus is again on the government’s role, and while the Marcos administration has been better than the Duterte administration in terms of economic management, it doesn’t inspire confidence that our situation relies on the government’s performance. 

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