Think tank sees likelihood of BSP rate cuts starting Q2

The Bangko Sentral ng Pilipinas (BSP) is expected to start cutting interest rates in the second quarter following the economic growth posted last year, according to UK-based think tank Pantheon Macroeconomics.

In a report Pantheon Macroeconomics economists Miguel Chanco and Moorthy Krshnan said they no longer expect the BSP to start normalizing policy in the wake of the growth posted in the fourth quarter.

“We now expect rate cuts to start in Q2, most likely from May,” the economists said.

At its last policy meeting for 2023, the BSP’s Monetary Board kept the overnight reverse repurchase rate steady at 6.50 percent.

Since May 2022, the BSP has raised the benchmark interest rate by 450 basis points to temper inflation.

Last Wednesday, the Philippine Statistics Authority reported that the Philippine economy grew by 5.6 percent for full year 2023.

While last year’s gross domestic product (GDP) growth was slower than the 7.6 percent expansion in 2022 and below the government’s six to seven percent target, National Economic and Development Authority Secretary Arsenio Balisacan said it placed the Philippines among the best-performing economies in Asia.

In the fourth quarter, GDP growth moderated to 5.6 percent from six percent in the third quarter.

The economy posted slower growth last year amid high inflation and interest rates.

Average inflation in 2023 was at six percent, higher than the 5.8 percent in 2022, and exceeded the BSP’s two to four percent target range.

For this year, Chanco and Krshnan said they are sticking to their forecast for GDP growth to slow further to 4.8 percent.

The government is aiming for 6.5 to 7.5 percent growth this year.

As El Niño and geopolitical tensions are seen as challenges to growth, Balisacan said the government would put in place measures to mitigate the impact on the economy.