METROPOLITAN Bank & Trust Co. (Metrobank) expects the Bangko Sentral ng Pilipinas (BSP) to cut benchmark rates next year at a slower pace compared with the US Federal Reserve to keep both inflation and the exchange rate stable.
“Aside from the BSP being data-dependent, I think they will also look at what the Fed is doing. It’s all about rate differentials — it could impact our local currency. Our thinking is that the Fed will be cutting rates at a faster pace than the Philippines,” Metrobank Deputy Head of Investments Ma. Cristina B. Gabaldon told reporters at an event on Wednesday.
“You don’t want to also keep rates high when inflation is already slowing. There’s that point where you [could] slow the economy too much,” Metrobank First Vice-President and Head of the Institutional Investors Coverage Division Ruben L. Zamora said at the same event.
The BSP has raised benchmark interest rates by a cumulative 450 basis points (bps) since May 2022 to help bring down its inflation, with its policy rate now at a 16-year high of 6.5%. The Monetary Board will hold its last policy meeting for the year on Dec. 14.
Meanwhile, the US central bank has hiked rates by a cumulative 525 bps to the 5.25%-5.5% range since it began its tightening cycle in March 2022.
The Federal Open Market Committee will next meet on Dec. 12-13 to review policy.
Mr. Zamora said the BSP is unlikely to rush to cut rates as it takes time for tightening moves to make their way through the economy. Slowing inflation also gives the central bank room to keep rates steady, he added.
Headline inflation eased to 4.1% in November from 4.9% in October and 8% in the same period last year. Year to date, inflation averaged 6.2%, faster than 5.6% in the same period last year and still well above the central bank’s 2-4% target.
Keeping its policy rate higher than the Fed’s own target rate would support the peso, but this could put stress on exports, Mr. Zamora added.
“Inflation is on one end, but we also don’t want to be the strongest Asian currency. [Exports] are a big driver for us,” he said.
On Thursday, the local unit closed at P55.30 per dollar, strengthening by less than a centavo from its P55.305 finish on Wednesday, Bankers Association of the Philippines data showed. This was the peso’s strongest close since its P55.19-per-dollar finish on Aug. 2.
Year to date, the local currency has gained 45 centavos from its P55.755 close on Dec. 29, 2022.
Meanwhile, Metrobank sees Philippine gross domestic product (GDP) growing by 6-7% next year driven by increased government spending, Mr. Zamora added. The government targets GDP growth of 6.5-8% in 2024.
The Philippine economy expanded by 5.9% in the third quarter, bringing the nine-month average to 5.5%, still below the government’s 6-7% goal for the year. — AMCS