BSP likely to embark on gradual easing cycle

The Bangko Sentral ng Pilipinas (BSP) will likely adopt a gradual easing cycle after slashing rates by 25 basis points last week, as growth is expected to be resilient in the coming quarters due to a robust labor market.

- KEISHA TA-ASAN

Aris Dacanay, economist for ASEAN at HSBC, said the Philippine central bank has room to gradually cut policy rates since "nothing terrible is happening in economic growth." "The labor market remains very strong with employment exceeding what the demographic trend would suggest," he said in a report.

"Yes, consumption momentum has waned due to high interest rates and inflation, likely leading to belowpotential growth. But we don't expect the economy to slow down substantially enough to make a 50-basis-point rate cut appropriate," Dacanay said.

He expects the BSP to cut rates by another 25 basis points in the fourth quarter, bringing the key interest rate down to six percent by end-2024 from the current 6.25 percent. HSBC also expects 100 basis points of rate cuts to five percent in 2025.

Dacanay added that with the US Federal Reserve seen to begin its easing cycle next month, there is less concern over BSP's dependence on the US central bank.

The BSP's Monetary Board lowered its target reverse repurchase (RRP) rate by 25 basis points during its fifth policy meeting of the year, marking the central bank's first rate cut in almost four years,the last being in November 2020.