DESPITE continued hawkishness, monetary authorities will likely keep interest rates unchanged well into next year before embarking on rate cuts, analysts said. “In the first half of 2024, we expect limited action from the BSP (Bangko Sentral ng Pilipinas) in terms of monetary policy changes as we enter an economic sweet spot of declining inflation, healthy labor market, and modest growth prospects,” China Banking Corp. chief economist Domini Velasquez said. Monthly inflation eased to just above the 2.0- to 4.0-percent target in November and is expected to slow further in succeeding months. A likely rise in April-July next year due to the impact of the El Niño weather pattern, however, could prompt no adjustments to key interest rates. The BSP’s policymaking Monetary Board last week trimmed its risk-adjusted inflation forecast for 2024 to 4.2 percent from the 4.4 percent in November. That for 2025 was unchanged to a within-target 3.4 percent. It warned however, that it remained “ready to adjust monetary policy settings as necessary” to ensure price stability, contrasting with the US Federal Reserve’s indicating a day earlier that rate cuts could be expected next year. “The Federal Reserve’s recent projection of more rate cuts in 2024 provides the BSP with flexibility to address potential upside risks to inflation through a more independent monetary policy,” Velasquez said. “The BSP can make policy decisions without being constrained with maintaining a wide interest rate differential with the Fed,” she added. The BSP’s policy rate is currently at a 16-year high of 6.50 percent following cumulative rate hikes of 450 basis points since May last year after inflation started surging. Nicholas Antonio Mapa, senior economist at ING Manila Bank, said the central bank was likely to prolong its pause until inflation was comfortably within target range until expectations were firmly anchored. “We expect the BSP to be on hold well into 2024, with potential rate cuts only likely to be considered towards the end of next year,” he added. HSBC Global Research economist Aris Dacanay noted that with inflation likely to surpass the 2-4 percent target band again in the second quarter of 2024, an easing would only be likely in the third quarter. “For the BSP, containing inflation is a larger prerequisite for rate cuts than managing the gap between the Fed and the BSP rates,” he said. “And with the expectation that headline CPI will reignite sometime in the second quarter, the BSP will still likely begin its easing cycle in 3Q 2024, even if the Fed begins cutting rates in the quarter before,” he added. Dacanay said the BSP could start with a conservative 25 bps reduction, repeating this every quarter until the policy rate stabilizes at 5.0 percent by 2025.

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