More rate cuts by BSP expected after Sept. inflation

HSBC has turned more optimistic on policy rate cuts by the Bangko Sentral ng Pilipinas, increasing its forecast to two more reductions this year and another three toward the second quarter of 2025 due to easing rice prices.

HSBC economist Aris Dacanay said the BSP will likely reduce its rate by 25 basis points (bps) each next week and in December to bring the Central bank’s rate to 5.75 percent from 6.25 percent.

Previously, HSBC projected only one more cut this year as it expected some drag to inflation downtrend from the impact of typhoon “Enteng,” globally known as “Yagi,” on agricultural goods.

From good to even better

“The biggest change was how the inflation outlook turned from good to even better, more so with September inflation surprising to the downside,” Dacanay said.

Inflation last month dropped to 1.9 percent from 3.3 percent in August as rice prices further fell to 5.7 percent from 14.7 percent, data from the Philippine Statistics Authority showed.

These results came after the government implemented a lower tariff on imported rice at 15 percent from 35 percent and after the world’s top rice exporter, India lifted its export ban on the commodity.

Phl to benefit the most

“Better global supply conditions should loosen things up for retail rice prices to finally slide. The Philippines will benefit the most, with rice representing nine percent of its consumer price index basket,” Dacanay said.

Due to fewer inflationary risks, Dacanay said the BSP could extend its 25-bps rate cut to each of its three more meetings toward the second quarter of 2025 or one quarter earlier than HSBC’s initial outlook. The additional cuts will further reduce BSP rate to five percent.

“The Federal Reserve’s surprise 50-basis point rate cut in September opened the door for the BSP to quicken its easing cycle. However, an even better inflation outlook has swung the door wide open,” Dacanay said.

Narrower interest rate gap

Economists say a narrower interest rate gap between the two central banks will help the country maintain healthy levels of foreign exchange, resulting in cheaper imported goods and attract more foreign investments.

Dacanay said the country’s overall inflation could average at 2.4 percent next year, while economic growth could hit 6.4 percent.

“Better global supply conditions not only give the BSP room to pick up the pace of easing, but it will also loosen the budgets of lower to middle income households and, thus, boost private demand,” he said.