HSBC expects the Bangko Sentral ng Pilipinas (BSP) to start cutting its policy rate in the third quarter of this year due to strong consumption and possibly higher rice prices.

Previously, HSBC forecasted BSP’s lowering of its 6.5 percent current rate by 25 basis points beginning the second quarter.

“With strong growth, there is no urgent need to cut policy rates. Rather, the BSP has the luxury of time to keep rates high for longer to make sure inflation expectations are well anchored,” HSBC’s latest report distributed to the media on Wednesday says.

Unchanged and still elevated rate

Thus, HSBC expects the BSP to announce an unchanged and still elevated policy rate in its meeting on 8 April, Monday, to prevent inflation from surging.

However, it maintains that the BSP might cut rates by a total of 75 basis points this year, resulting in a 5.75 percent inflation by year-end.

HSBC says strong demand for goods and services from both private and public sectors will likely continue, forcing businesses to raise their prices.

“Credit growth is already past its trough and public investment remains strong, while a strong labor market continues to be the foundation of the Philippines’ outperformance,” the global lender says.

According to the BSP, bank lending as of November 2023 grew by 9.3 percent to a total of P13.3-trillion loan, much better than the negative 5 percent growth during the pandemic in 2021.

Meanwhile, banks’ profitability rose by 11.3 percent to P272.6 billion.

Slower economy

HSBC economist Aris Dacanay projected the Philippine economy to grow a bit slower by 5.3 percent this year compared to 5.6 percent in 2023.

However, he stressed this could be higher as the trade in services sector further booms, mainly driven by the business process outsourcing or BPO and tourism.

“The Philippines was the fastest growing ASEAN economy in 2023 and indicators, so far, show that 2024 GDP will be even better despite the high cost of borrowing,” HSBC says.

HSBC says the BSP is also closely monitoring growth in rice prices amid possible lower supply of the commodity.

“Global rice prices remain elevated while we will only know the actual damage El Niño has caused on food supply in the months ahead,” HSBC said.

Rice prices

Rice prices in February posted an annual growth of 17 percent from 16 percent in January, according to the Philippine Statistics Authority.

This came after El Niño damaged rice crops representing nearly 80 percent of the total P357.4-million agricultural loss that month, data from the Department of Agriculture show.

Due to the statistical principle of positive base effects in the second quarter, HSBC says inflation will temporarily exceed BSP’s target of 2 to 4 percent.

February inflation rose to 3.4 percent from January’s 2.8 percent.

The statistics authority will announce March inflation level on 5 April, Friday.