The Bangko Sentral ng Pilipinas (BSP) announced that their benchmark rates will remain at 6.5%, marking the second time in a row that the central bank has kept rates unchanged since its 25 bps off-cycle rate hike in October. This followed the U.S Fed\u2019s announcement the previous day that it was keeping their own rates steady for a third straight meeting and signaled possible rate cuts next year.<\/p>\n\n\n\n
Our View: <\/strong>The decision of the BSP to pause rate hikes was anticipated. The decision for the BSP to pause was largely influenced by November\u2019s inflation numbers, with headline inflation cooling down to 4.1% amid slower increases in food prices and lower transport costs. <\/p>\n\n\n\n BSP Governor Remolona however signaled that the BSP will maintain a hawkish stance and not ease rates just yet, and hinted that the BSP will only begin to cut rates once inflation settles within the government\u2019s 2 \u2013 4% target range. The upper band of the target inflation rate can be hit as early as this month. However, headline inflation could resume moving higher by the 2nd quarter due to a low base.<\/p>\n\n\n\n The U.S. Fed also kept rates steady, providing relief to the local market. The Fed held their benchmark overnight rate steady in the 5.25% – 5.5% range as expected, but more importantly market analyst are forecasting three rate cuts in 2024, assuming quarter percentage point increments. This provided relief for the local market, with the PSEi climbing by 2.47%, its biggest gain in 10 months, breaching past the 6,400 level. <\/p>\n\n\n\n The timely rate cuts next year for both the Fed and the BSP will be the turning point that the local market sorely needs as volume in general has remained low for most of 2023. Easing rates should be a positive for the property and consumer sector in general, and could also be beneficial for mid-size banks, as lower rates should improve their non-performing loans (NPLs).<\/p>\n\n\n\n