Moody's Analytics said in its Weekly Highlights and Previews about Asia-Pacific economies that the Bangko Sentral ng Pilipinas (BSP) is expected to cut key policy rates before the year ends due to easing inflation.
Moody's Analytics echoed the earlier forecast by Fitch Solutions' unit BMI that the BSP might cut by 100 basis points (bps) in the last three months of 2024.
"With headline inflation on the downtrend, odds are high that the BSP will deliver another rate cut when the Monetary Board meets on 16 October," Moody's Analytics said.
According to the report, Philippine inflation cooled significantly to 1.9% year on year in September from 3.3% in August, giving the BSP more headroom for further rate cuts.
"The reading was softer than our and market expectations for a 2.5% print and came in below the lower end of Bangko Sentral ng Pilipinas' estimate of 2% to 2.8% for the month. Core inflation, which excludes certain food and energy items, eased to 2.4% from 2.6% prior," Moody's Analytics added.
The Philippine Statistics Authority (PSA) reported last week that headline inflation further eased in September at 1.9%, the lowest on record since the 1.6% recorded in May 2020, bringing year-to-date inflation to 3.4%, which is well within the government's 2 to 4% target.
In comparison, headline inflation was 3.3% in August and 6.1% in September last year.
National Statistician Dennis Mapa said the downtrend in overall inflation was due to the slower annual increase in food and non-alcoholic beverages, which was 1.4% from 3.9% in August.
Food inflation, in particular, eased to 1.4% in September from 4.2% the previous month.
Mapa said the deceleration in food inflation was due to the slower rice inflation rate, which was 5.7% from 14.7% in August.
Other contributors to the lower food inflation include the faster decline in the inflation of vegetables, tubers, cooked bananas, and pulses.
**Policy rate cuts**
Also, last week, Fitch Solutions' unit BMI predicted that the BSP would further cut policy rates by 100 basis points (bps) before the end of the year.
"We expect the BSP to ease more aggressively over the coming months. Crucially, we forecast the Fed to cut by 125 bps in 2024. On this projection, we think the BSP will have more policy room to maneuver with a 100-bp cut of its own," BMI said.
If the BSP cuts by a cumulative 100 bps this year, the key rate would be 5.5% by yearend.
BMI previously projected two 25-bp rate cuts for the year but revised this outlook after the US Federal Reserve delivered a jumbo 50-bp cut in September.
"Such a move essentially provides the BSP with leeway to ease more aggressively," it said.
BMI now expects the Monetary Board to deliver a 50-bp cut on Oct. 16 and another 25-bp cut on Dec. 19.
"We have highlighted that the economy needs support following second-quarter gross domestic product (GDP) data," BMI said.
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