The BSP Monetary Board left benchmark interest rates unchanged at 5.75% during their first meeting of the year, defying market expectations of a 25bps (0.25%) cut. The BSP noted that domestic growth remains firm and inflation risks remain balanced, although we beg to disagree with the statement on domestic growth given the below-trend GDP growth in 4Q 2024. Instead, they opted to hold rates steady to give policymakers time to recalibrate its models and factor in global economic uncertainty particularly regarding trade policies.<\/p>\n\n\n\n
We did not have 100% conviction that the BSP will cut this meeting, although we stick by our forecast that the Board will cut rates by 25bps in the first half (either in April or June) and by another 25bps in the second half. The second cut will likely be towards the end of the year, considering that the likelihood of a US rate cut has been pushed back to October.<\/p>\n\n\n\n
The latest BSP decision would most likely push back the timeline for the margin erosion that we expect for banks, although at the same time it would delay the boost in loan demand that would come from the lowering of rates.<\/p>\n\n\n\n
On the other side of the spectrum, it would also delay the recovery in property sales, especially in the rate-sensitive low-cost and middle-income segments. We find this particularly concerning given the condo glut in NCR and the large inventory backlog of most property developers. Nonetheless, we remain optimistic that consumer demand will pick up even without the rate cut, on the back of benign inflation, real wage growth, and an expected boost from this year\u2019s midterm elections.<\/p>\n\n\n\n