Growth in stock, bond markets seen with less hawkish BSP

Economists expect growth in stock and bond markets but more cost-efficient spending by investors after the Bangko Sentral ng Pilipinas (BSP) signaled a less hawkish stance.

Michael Ricafort, chief economist of Rizal Commercial Banking Corporation, said the BSP's steady rate means inflation will likely stabilize and settle within the government target, allowing extra funds to investors.

"Less hawkish signals locally could support sentiment on the local stock and bond markets," he said.

"The Philippine Stock Exchange index (PSEi) also gained after global crude oil prices still lingered among two-month lows as a leading indicator that could support the recent easing trend in inflation globally," Ricafort continued.

Last Friday, the PSEi slightly declined by 9.51 points to 6,618.19.

Ricafort said this level still emerged as among one-month highs.

The BSP Monetary Board left its policy rate unchanged at 6.5 percent in its latest meeting, following a slightly higher inflation last month at 3.8 percent from 3.7 percent in March.

Ricafort added the BSP aims to drive spending in the next quarters as BSP Governor Eli Remolona Jr. looks to lower the reserve requirement ratio (RRR) for banks to 5 percent from 9.5 percent.

Remolona said the BSP might cut its policy rate in the third or fourth quarter of the year as inflation nears 3 percent.

However, he stressed the BSP will not let a possible RRR reduction coincide with easing its policy rate.

However, HSBC economist Aris Dacanay said the BSP's steady but still elevated rate reminds the public to avoid overspending.

As household consumption slowed, the economy in the first quarter grew slower than expected at 5.7 percent, according to the Philippine Statistics Authority.

"We would argue that, to a certain extent, the deceleration in growth was healthy to the economy. Recall that the Philippine economy was overheating in 2022 and 2023, with investment in the economy much more than what it was saving," Dacanay said.

Between 2021 and 2023, HSBC data shows the investment rate reached 27 percent while the saving rate settled at 13 percent.

Meanwhile, the BSP has raised its rate by 450 basis points since May 2022.

Last year, the gap already equalized amid the high BSP rate.

"This implies that the economy does not need to borrow abroad as much as before, and as the economy cools, we can expect the current account deficit to narrow further," Dacanay said.

He said saving is especially important to avoid risks from sharp foreign exchange movements.

"This led to wide current account deficits in 2022, leading to financial jitters when the Philippine peso weakened to as much as 59 against the US dollar," Dacanay said.