MONETARY authorities will likely keep key interest rates unchanged this Thursday, analysts polled by The Manila Times said. Consumer price growth has moderated to just above the Bangko Sentral ng Pilipinas’ (BSP) target and economic growth was better than expected in the third quarter, they noted. Several said that the central bank’s policymaking Monetary Board was likely to again profess a tightening bias given inflation concerns. Others, meanwhile, claimed the BSP was likely done with raising interest rates and that an easing could be ordered as early as the second quarter of next year. Key interest rates have been increased by a total of 450 basis points (bps) since May 2022 in a bid to temper inflation. The BSP’s policy rate currently stands at 6.5 percent, the highest in 16 years, following an off-cycle 25-bps hike just before the end of October. That was prompted by a two-month run of higher inflation in August and September. Consumer price growth, however, then slowed the following month — which led to a pause last November 16 — and further in November. Last month’s headline rate of 4.1 percent was just above the BSP’s 2.0- to 4.0-percent goal and the figure is expected to finally return to target this month. While full-year inflation is still expected to exceed the target in 2023, it is expected to remain under control and end next year within 2.0-4.0 percent with possible spikes due to El Niño and other factors. Aside from receding inflation pressures, Oxford Economics Japan economist Makoto Tsuchiya said the recent strengthening of the peso, which he believes will partially reverse, had also provided another reason to pause. “At the same time, resilient domestic economy performance allows BSP to retain a hawkish stance by staying put,” he added. Tsuchiya expects inflation to average 6.0 percent in 2023 before slowing to 3.4 percent next year. Tightening over? Miguel Chanco from Pantheon Macroeconomics, meanwhile, said the BSP was finished with its tightening cycle. With base case inflation likely to hit 2.8 percent next year, Chanco said the Monetary Board would have ample room to begin easing by as much as 100 bps in 2024. Similarly, Sun Life Investment Management and Trust Corp. Patrick Ella said the BSP would pause this December 14 and then start making a case for rate cuts by the middle of the first quarter of 2024 at the earliest. “[T]he second quarter of 2024 will be likely timing of rate cuts. I see a total of 100 bps,” Ella said. ANZ Research economist Debalika Sarkar also expects the BSP to keep the policy rate on hold and retain its “hawkish bias unless there are signs of consistent improvement in price pressures over the following months.” “We believe that the upside risks to inflation are still there, mainly from the food channel. Food supply issues have not been fully resolved and the impact of dry weather on agriculture will be felt with a lag,” she said. Headline inflation, Sarkar continued, could average 3.5 percent next year. For Emmanuel Lopez of Colegio de San Juan de Letran Graduate School, comparatively subdued trends also provide no justification for the Monetary Board (MB) to increase the policy rate. “Although it’s not yet ripe for the MB to decrease the policy rate, I think it’s still applicable for the MB to maintain the status quo,” he added. Philippine National Bank economist Alvin Arogo shared the view, noting that current interest rates were restrictive enough given a general downtrend in fixed capital formation growth. “In the absence of severe weather disruptions, there is a fair chance that the headline print could be better than our baseline view and momentarily fall below 4.0 percent within the coming three months,” he added. However, Arogo said that sustainable price growth would only be achieved starting the fourth quarter of 2024, forecasting full-year inflation of 6.0 percent for 2023 and 4.5 percent for 2024. He said the BSP should consider reducing rates in the fourth quarter of 2024 with a total cut of 50 bps for the year. ING Manila Bank senior economist Nicholas Antonio Mapa, for his part, said inflation expectations had been reanchored with low prints likely more impactful on expectations. “With these data and developments, BSP will likely retain policy rates at 6.5 percent as it appears there is little impetus to tighten further. This could help the BSP reestablish some credibility as a data driven central bank,” he added. “If BSP waits for more data which will likely show a Fed (US Federal Reserve) signaling a potential rate cut by the first half of 2024 and inflation back within target, they could be in a better position to decide on monetary policy going into 2024.” Union Bank of the Philippines chief economist Ruben Carlo Asuncion said it was too early to raise the likelihood of rate cuts. Uncerta “Even talk of a rate cut, I believe, would not be peddled by the BSP at this juncture when uncertainty is still the name of the game,” he said. “Even as we have seen the continued disinflation in the November print, I do not think that the BSP will move at all.” China Banking Corp. chief economist Domini Velasquez also expects a fresh pause and a continued hawkish stance due to potential upside risks. “In the first half of 2024, upward pressure on food prices (particularly rice) caused by El Niño, possible fuel price increases due to OPEC+ production cuts, and higher-than-expected minimum wage hikes are expected,” she explained. Security Bank Corp. chief economist Robert Dan Roces also warned that core inflation remained elevated. “This implies that underlying inflationary pressures persist, requiring continued vigilance from the central bank,” he said. “Effective inflation control often requires coordinated efforts between monetary and fiscal policy. The central bank may consider the government’s fiscal policy plans before making any decisions on interest rates,” he added. HSBC Global Research economist Aris Dacanay, meanwhile, expects the downtrend in inflation to continue. Base effects will be favorable in the next three months and food supply conditions will also be more ample than last year, he noted. “Despite the many upside risks to inflation, this consistent downtrend should provide the BSP leeway to pause in the last Monetary Board meeting for the year,” Dacanay said. “But rate cuts aren’t on the table for now. As mentioned, there are many upside risks to inflation. For instance, the risk of further minimum wage and electricity rate hikes is still substantial.” The BSP will stay pat for longer, he continued, adding that this would particularly be crucial given the importance of bridging the gap between local and Fed policy rates to provide support for the peso. A local easing cycle will only start after the US central bank initiates its first rate cut, Dacanay said. For Rizal Commercial Banking Corp. chief economist Michael Ricafort, there is no urgency for more BSP rate hikes given a stronger peso, lower global oil prices, and relatively better weather conditions. “Provided no escalation of geopolitical risks, particularly on the Israel-Hamas war and the potential effects on world oil prices, headline inflation could ease further to a little over 4 percent in December 2023,” he added.