The Bangko Sentral ng Pilipinas (BSP) is widely expected to cut its benchmark interest rate when policymakers meet on August 15, with a pause seen as unlikely, especially if the US Federal Reserve signals a rate reduction in September.
While July’s inflation rate unexpectedly climbed, analysts believe this is a temporary blip and will not deter the central bank from easing monetary policy.
The BSP is under growing pressure to stimulate economic growth while keeping inflation within target.
With the core inflation rate showing signs of cooling, market expectations for a rate cut have intensified.
HSBC and other financial institutions predict a 25 basis point reduction in the policy rate.
They argue that the current interest rate level is too restrictive given the outlook for inflation and the need to support economic activity.
Citi economist Nalin Chutchotitham believes the BSP is likely to cut rates despite July’s higher-than-expected inflation.
She points to the elevated real interest rate, the projected downward trajectory of inflation, and the economy operating below capacity as key factors supporting her outlook.
The decision to cut rates could also be influenced by the upcoming release of second-quarter GDP data.
A stronger-than-expected reading might lead the BSP to pause, while a weaker figure could accelerate the easing cycle.
Given the encouraging inflation forecast, BPI maintains its expectation for upcoming rate cuts.
While domestic economic conditions will be a key factor, the BSP will also monitor global developments, particularly the stance of the US Federal Reserve.
The central bank is expected to provide more clarity on its monetary policy stance at its August 15 meeting.
