In a widely-anticipated move, the Bangko Sentral ng Pilipinas (BSP) kept its benchmark interest rates unchanged at 6.5%. However, the policy statement took a slightly more hawkish tone, with the Monetary Board acknowledging that upside risks to inflation have emerged. This has led to an upward revision in BSP\u2019s 2024 risk-adjusted inflation forecast from 3.9% to 4.0%. Inflation forecast for 2025 remained unchanged at 3.5%.<\/p>\n\n\n\n
The BSP\u2019s tone seems to imply that a June rate cut is off the table, and that easing will likely begin in August. With only three policy meetings from August to December, that would leave the BSP room to cut rates by only 75 bps (0.75%) unless serious growth concerns emerge later in the year that would warrant a 50 bps (0.50%) rate cut in December. <\/p>\n\n\n\n
Taking these into consideration, we are revising our rate cut forecast from 100-125 bps to 75-100 bps. We now expect benchmark rates to end the year at 5.75%, instead of 5.50%. The Fed rate cut forecast has likewise been cut, with the probability of easing being a toss-up between June or July, leaving the Fed room to cut by a maximum of 100 bps.<\/p>\n\n\n\n
The local equities market, and our emerging market peers, has been showing signs of fatigue after a bullish start to the year. The market priced in easing to start by the end of 1H 2024, but with inflation rearing its ugly head once again, the market has started retreating to price in a later rate cut. The movement of the Financial and Property indices likewise support this point, with Property erasing its gains from the start of the year while Financial marches relentlessly higher.<\/p>\n\n\n\n
Later rate cuts would temper our bullishness on the residential (and industrial) segment of property companies, especially since home buyers and business owners are aware that rate cuts are on the horizon. As such, they will likely hold off until interest rates are lower before purchasing a home or expanding their manufacturing footprint. <\/p>\n\n\n\n
However, our top property picks ALI, SMPH and RLC remain underpinned by their mall and hotel segments which have shown remarkable resurgence despite elevated costs of living. On the other side of the spectrum, the higher-for-longer narrative would be a boon for our top banking picks: BDO, BPI and MBT.<\/p>\n\n\n\n