THE BANGKO SENTRAL ng Pilipinas (BSP) is seen to begin its policy easing cycle by August and cutting rates by as much as 75 basis points (bps) this year as inflation is expected to decelerate, Capital Economics said.

“With inflation likely to fall back sharply, we think the central bank in the Philippines will start cutting interest rates in August,” it said in a June 20 report. “In most places, rate cuts will come sooner and be more aggressive than financial markets are currently pricing in.”

Philippine headline inflation accelerated to 3.9% year on year in May from 3.8% in April, but marked the sixth straight month that inflation settled within the BSP’s 2-4% annual target.

The BSP earlier said the monthly consumer price index (CPI) could temporarily breach its target band from May until July due to base effects but begin easing anew by August.

For the first five months, the CPI averaged 3.5%, matching the central bank’s baseline forecast for the year.

“Inflation is back to target in most countries [in Asia] and likely to remain low, helped by a combination of below-trend economic growth and lower food price inflation,” Capital Economics said.

“Central banks have recently started to sound more dovish, and we expect most to begin easing policy this year, starting with the Philippines in August,” it added.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board could kick off its easing cycle as early as August, with 25-50 bps in cuts expected in the second semester as they have become “less hawkish than before.”

The Monetary Board will revisit its policy settings anew on Thursday (June 27). All 15 analysts in a BusinessWorld poll conducted last week expect the BSP to keep its policy rate at a 17-year high of 6.5% for the sixth straight meeting.

The central bank raised borrowing costs by 450 bps from May 2022 to October 2023 to help bring down red-hot inflation.

For its part, Capital Economics expects the BSP to deliver a 25-bp cut in the third quarter.

By end-2024, the policy rate is expected to be reduced to 5.75%, for a total of 75 bps worth of cuts for the whole year.

The Monetary Board’s only rate-setting meeting in the third quarter is scheduled on Aug. 15. This will be followed by its last two reviews for the year, which will be on Oct. 17 and Dec. 19.

Meanwhile, Capital Economics said it expects Philippine gross domestic product growth to settle at 5.5% this year. This is below the government’s 6-7% goal for 2024 and would match the 5.5% expansion logged in 2023.

The Philippine economy grew by 5.7% in the first quarter, faster than the 5.5% expansion logged in the prior three-month period but slower than the 6.4% pace recorded a year prior.

“We expect economic growth in most countries in Asia to slow in the second half of 2024, as tighter fiscal policy, high interest rates and weaker global growth all weigh on demand,” Capital Economics said.

For 2025, it sees the Philippine economy expanding by 6.5%, which is at the lower end of the government’s 6.5-7.5% growth goal for next year. — L.M.J.C. Jocson