14-5-2024 (MANILA) The Philippine central bank is anticipated to maintain its key policy rate at 6.50% during its meeting on Thursday, according to a Reuters poll of economists. Despite a rise in annual inflation to 3.8% in April, which remains within the central bank’s 2-4% target range, Bangko Sentral ng Pilipinas (BSP) and economic experts foresee upward inflationary pressures.
The consensus among 23 economists surveyed between May 7-13 is unanimous that the BSP will keep the overnight borrowing rate unchanged on May 16 and likely through September. Derrick Kam, Asia economist at Morgan Stanley, highlighted that although inflation is nearing the upper end of BSP’s target range, the central bank had already accounted for these dynamics in its previous meeting.
Projections indicate a potential rate cut in the fourth quarter, with the median forecast suggesting a reduction of 50 basis points, bringing the rate to 6.00% by year-end. Of the economists with end-year predictions, a majority see the policy rate at 6.00%, while a few expect it to vary between 5.50% and 6.25%.
Despite the highest interest rates since June 2007, the Philippine peso has depreciated by about 4% against the U.S. dollar this year. Sarah Tan, an economist at Moody’s, noted that the recent weakness of the peso might compel the BSP to maintain current rates, especially after the currency approached the 58 PHP/USD psychological threshold in late April.
While some economists anticipate a rate cut next quarter, the overall sentiment remains cautious, with many awaiting the actions of other major central banks, particularly the Federal Reserve, which is expected to implement its first rate cut in September.
