According to a recent Reuters poll, the Philippine central bank is expected to keep its key policy rate unchanged on May 16. Economists surveyed now predict that the first rate cut will likely not occur until the final quarter of this year.
Inflation in the country has increased for the third consecutive month, reaching 3.8% in April compared to 3.7% in March. While still within the central bank’s target range of 2-4%, both the Bangko Sentral ng Pilipinas (BSP) and economists anticipate that risks will continue to lean towards the upside.
Given this outlook, the BSP may be hesitant to lower its interest rate before other major central banks, particularly the Federal Reserve, which is expected to make its first cut in September.
All 23 economists surveyed in the Reuters poll predict that the BSP will keep its overnight borrowing rate unchanged at 6.50% on May 16. The survey also indicates that rates are expected to remain at this level at least until the end of September.
“We expect the pause in rates to be extended at the meeting. Headline CPI inflation prints have been moving higher and are edging closer to 4% – the upper end of the BSP inflation target range,” noted Derrick Kam, Asia economist at Morgan Stanley.
“However, the central bank had already taken the recent inflation dynamics into consideration at their last meeting and hence the recent run of data should not be a surprise that would prompt the central bank to hike.”
The median forecasts from the survey suggest that interest rates will remain unchanged until the end of the third quarter, followed by a 50 basis point cut in the fourth quarter, bringing the rate to 6.00% by the end of the year.
Out of the 18 economists who provided end-year forecasts, eight believed that the policy rate would be at 6.00%, three expected it to be at 6.25%, three predicted it would be at 5.50%, and one predicted it would be at 5.75%. Additionally, three economists predicted that there would be no change from the current rate of 6.50%.
However, a significant minority of eight out of 19 economists expected that the central bank would make the first rate cut in the next quarter.
Despite having the highest rates since June 2007, the Philippine peso has depreciated by about 4% against the U.S. dollar this year.
Sarah Tan, an economist at Moody’s, wrote that even though the Philippine peso came close to the psychological threshold of 58 PHP/USD in late April, the odds of a rate hike are low. She also mentioned that the recent weakening of the peso will prompt the central bank to maintain rates at their current level.