Swing votes could decide policy at BSP

SWING votes could be crucial with regard to monetary policy given apparent leanings at the now-complete Monetary Board, an analyst said.

“Counting hawks and doves at the FOMC (Federal Open Market Committee) is a regular practice for most analysts attempting to gauge the timing and direction of the next Fed (US Federal Reserve) move,” ING Manila Bank senior economist Nicholas Antonio Mapa said.

“With the BSP’s (Bangko Sentral ng Pilipinas) Monetary Board cast complete, perhaps we should try to carry out this exercise as we begin the year and predict the BSP’s next move and its timing,” he added.

All positions in the board, which decides policy for the central bank, were filled last week with the appointment of Ralph Recto as new Finance secretary to replace Benjamin Diokno, who then took up the last private sector seat.

Both join BSP Governor Eli Remolona Jr. and members Rosalia de Leon, Romeo Bernardo, Anita Linda Aquino and Bruce Tolentino.

Mapa said he currently identifies one hawk, one dove, two dovish members, one hawkish member, and two wild cards.

With inflation currently on a downtrend and the BSP policy rate at a 16-year high of 6.5 percent following 450 basis points of increases since May 2022, talk now revolves around the possible timing of rate cuts.

The MB held fire during its last meeting in December but indicated that rates could stay high for longer given continued upside risks to inflation.

Mapa expects Remolona, who has expressed a preference for sufficiently tight policy settings, to remain hawkish.

“We expect him to drive the discussion with his preference for higher for longer now that the BSP continues to operate utilizing the risk-adjusted inflation forecast as opposed to their actual baseline forecast,” he said.

The BSP’s current risk-based

inflation forecast for 2024 sees inflation still exceeding the 2.0- to 4.0-percent target this year at 4.2 percent.

Diokno, meanwhile, will likely adopt a dovish stance given remarks during his tenure as Finance secretary.

“He did indicate that rate cuts will likely happen this year with up to 100 bps worth of easing in the pipeline,” Mapa noted.

Recto, de Leon and Bernardo, meanwhile, are “maybes” for the ING economics.

Recto and de Leon might lean toward being dovish, he said, noting the need to fund the government.

Bernardo, meanwhile, might be leaning toward the hawkish side given previous statements about the need to act versus stubborn inflation.

As for Aquino and Tolentino, Mapa said the two could end up delivering the swing votes.

“MBM (Monetary Board member) Aquino’s work in policy reform is well covered given her extensive background in the private sector,” he said.

“MBM Aquino, however, has yet to speak out on her views on policy, so this makes her a potential swing vote for the hawks or the doves,” Mapa added.

“Meanwhile, MBM Tolentino recently underscored the role of supply-side measures in fighting off price pressures, which could mean he leans dovish, although it remains unclear if he would opt to support a more dovish leaning in 2024, making him another wild card.”

A return to using baseline inflation forecasts for policy decisionmaking, Mapa said, could allow doves to argue for a rate cut shortly after the Fed begins its pivot.

“On the other hand, [if] a potential flare-up in global crude oil prices and extensive crop damage manifests due to El Niño, we could see the BSP’s own pivot delayed to the back end of the year,” he added.

“So in short, this early in the year, anything can happen.”