Department of Finance Secretary Ralph Recto (link) said that he doesn’t “expect interest rates to go any higher”, and that “they will start to go down, maybe 150 bps in the next two years”. Mr. Recto said that it’s possible for the Monetary Board to start cutting rates this year, with additional cuts to come in 2025. As Secretary of the DoF, Mr. Recto is a member of the Monetary Board which is the BSP body charged with making periodic adjustments to the interest rate.
MB BOTTOM-LINE: Will the BSP beat the US Federal Reserve to the pivot punch? The BSP has said that it would look to cut rates by 25 basis points this August with a second 25 bp cut sometime in Q4, and the prevailing belief is that the Federal Reserve will make its first cut in September. On the one hand, it sounds great to be talking about specific dates and big 150 bp drops, but on the other hand, it’s not like we haven’t been here before. We’ve spent most of the year waiting for that first cut to come, but inflation has not been a polite houseguest. We’ve long since cleaned the room, washed the dishes, and changed into our pajamas to try to make inflation take the hint. Our only move is to simply wait until inflation has been invading our home for long enough that all our behaviors and routines incorporate inflation, and then we can consider him part of the new normal. That’s basically what will happen when inflation falls into the target range. Inflation isn’t going away. We’re just going to consider him a member of the household.
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