The Monetary Board of the BSP kept benchmark reverse repo rates unchanged at 6.5%, while overnight deposit and lending rates remained at 6.0% and 7.0% respectively. It was a widely-telegraphed move, and mostly priced-in by markets.<\/p>\n\n\n\n
Interestingly, the BSP noted in its policy statement that inflation risks have receded
but the central bank remains cautious that risks remain tilted to the upside. In line with this statement, the BSP revised its risk-adjusted inflation forecast for 2024 from 4.2% to 3.9% while bumping its 2025 forecast up to 3.5% from 3.4%. BSP Director Dennis Lapid attributed the downward revision to lower-than-expected December and January inflation prints, appreciation of the peso, lower path for global oil prices, and stronger domestic growth output. <\/p>\n\n\n\n
The BSP also took note of the government\u2019s policy adjustments to address price pressures on rice, such as securing import supply from Vietnam and efforts to increase domestic rice productivity. This was an important acknowledgment, as the BSP has repeatedly said previously that most of the current risks to inflation should be addressed by non-monetary policy.<\/p>\n\n\n\n
In general, the BSP maintained its hawkish stance, but we found some notable statements from bank officials that point to easing on the horizon. For one, BSP Senior Assistant Governor Iluminada Sicat referenced the possibility of rate cuts this year without BSP Governor Remolona\u2019s typical warning that the BSP stands ready to raise rates if necessary. Sicat also left the door open to not moving in lockstep with the Fed, citing that domestic inflation is mostly emanating from the supply side rather than excess demand. <\/p>\n\n\n\n
As such, Sicat said that the BSP is not averse to cutting rates ahead of the Fed if growth continues to show signs of a slowdown. Recall that earlier-than-expected
deceleration of disinflation in the US sparked concerns earlier this week that the rate cut schedule could be pushed later than the May Fed meeting.<\/p>\n\n\n\n
The BSP statement, and later comments from BSP officials, was less hawkish than we expected. The central bank\u2019s downward revision of forecasts to within the target range implies that policymakers are becoming comfortable with the current inflation trajectory. <\/p>\n\n\n\n
The BSP could also be considering overseas developments, with one of our major trade partners, Japan, unexpectedly slipping into recession. Another G7 country, the United Kingdom, has also entered technical recession as of Q4 2023. These global headwinds could soon convince policymakers that there is an emerging risk to growth which would warrant policy intervention. Given this, we maintain our forecast of a 1.00-1.25% rate cut this year, with the BSP likely cutting rates as early as June.<\/p>\n\n\n\n