BSP seen taking cues from Fed

INFLATION will be less of a pressing concern in the Philippines, Bank of America (BofA) Global Research said in a report on Monday, adding that rate cuts are expected to start soon.

“The latest inflation print is supportive of our view that easing inflation may help shift the tone

of the Bangko Sentral ng Pilipinas (BSP) from hawkish to neutral,” BofA Global Research said.

“Our forecasts point to headline inflation in 2024 staying well within or below target ranges in Indonesia, the Philippines, Thailand and Vietnam,” it added.

Inflation has settled within the central bank’s target range of 2.0 to 4.0 percent for two consecutive months in January at 2.8 percent.

BofA Global Research mentioned that the main factors contributing to the downward trend are the reduced growth rate in food and nonalcoholic beverages, and the decrease in housing, water, electricity, gas and other fuel costs.

With this, BofA Global Research said that the central bank could start cutting rates in sync with the United States Federal Reserve.

“BSP is more sensitive to capital flows and FX (foreign exchange) movements, and should follow the Fed’s gradual easing cycle closely,” it said.

It then expected the BSP to cut the policy rate by 100 basis points (bps), with a gradual reduction of 25 bps in the second quarter, followed by a 50-bps cut in the succeeding quarter, and another 25 bps in the last quarter of the year.

The BSP’s benchmark rate currently stands at 6.5 percent, the highest since 2007, after 450 basis points of rate hikes beginning May 2022 as inflation started surging.

The last adjustment — an offcycle 25-bps hike — came last October and the central bank’s policymaking Monetary Board has held fire during its last three meetings.

It next meets on April 4.