StanChart sees up to 75 basis points worth of Bangko Sentral cuts this year

THE Bangko Sentral ng Pilipinas (BSP) could cut rates by up to 75 basis points (bps) this year, Standard Chartered Bank (StanChart) said.

“We do think that the BSP can actually start to cut rates. I’m looking at 75 bps in rate cuts this year with the BSP cutting by 25 bps starting in August,” Standard Chartered economist and FX analyst Jonathan Koh said in a webinar on Thursday.

BSP Governor Eli M. Remolona, Jr. said this week that the central bank is a “little bit less likely” to cut rates at its rate-setting meeting on Aug. 15 amid “slightly worse than expected” inflation in July.

Headline inflation accelerated to 4.4% in July from 3.7% in June. This was the strongest inflation reading in nine months and also ended seven straight months of inflation settling within the central bank’s 2-4% target range.

However, Mr. Koh said he still expects the BSP to cut rates despite the spike in July inflation, which was likely “driven by supply side issues and base effects rather than demand inflation.”

“I think the risk is that they delay the cut by one meeting or one month, given that they basically alluded that they could even do an off-cycle. But I think I’m still keeping to my view that the BSP will cut next week,” he said.

“If you really look at the underlying details of the second-quarter GDP growth, and if you look at what core inflation is suggesting as well, it’s really suggesting that growth momentum is soft and that the pass-through to core inflation from higher supply is also not there.”

The economy grew 6.3% in the second quarter, gaining momentum from the revised 5.8% growth posted in the first quarter and the year-earlier 4.3%, the Philippine Statistics Authority reported on Thursday.

The second-quarter reading was the strongest since the 6.4% growth logged in the first quarter of 2023.

“That seems strong but underlying details actually suggest that the growth momentum may actually be softer than what headline is actually suggesting,” Mr. Koh said.

Standard Chartered expects GDP to average 6% this year, at the low end of the government’s 6-7% growth target for the full year.

Mr. Koh said that growth should continue to improve in the remainder of the year, with an expected policy easing set to support the economy.

“That should help in terms of the investment front… and we are already seeing, for example, loan growth kind of bottoming as well. That’s a bit of a positive signal. Rate cuts will help to fuel that loan growth a bit more on the business front.”

Mr. Koh said improving labor market conditions will also boost growth.

“Even as consumer spending has slowed, the labor market is actually resilient. What we are seeing is also a pick-up in high-quality employment,” he said. “Those factors should kind of mean that growth in the second half of the year should actually improve.”

Meanwhile, Standard Chartered revised its inflation forecast to 3.1% for 2024 from 3.5% previously.

In the first seven months, headline inflation averaged 3.7%, above the central bank’s 3.3% full-year forecast.

Mr. Koh said this was mainly due to expectations of lower rice prices after tariffs were cut on rice imports.

President Ferdinand R. Marcos, Jr. in June signed an executive order which slashed tariffs on rice imports to 15% from 35% previously, until 2028.

However, Mr. Koh cited upside risks to the inflation outlook from elevated food prices due to supply shocks and geopolitical risks that could push oil prices higher. 

“Those could have a bit of upside risk to inflation, but I think at the end of the year we are still looking at inflation moderating significantly,” he added. — Luisa Maria Jacinta C. Jocson