Markets steady as BSP rate cut looms

The Philippine Stock Exchange index (PSEi) closed slightly higher on Friday, adding 3.71 points or 0.06 percent to settle at 6,281.58, as investors awaited the Bangko Sentral ng Pilipinas’ (BSP) policy meeting on 28 August where a rate cut is widely anticipated.

Despite the modest gain, the benchmark index hovered near its lowest level in a week, but still remained among five-month highs since 20 March, reflecting cautious sentiment even after the recent improvement in infrastructure spending data.

“The PSEi closed marginally higher, still among one-week lows but also near five-month highs since March, supported by recent gains in infrastructure spending, stable peso exchange rate around P57, and strong demand in the bond markets after the successful Retail Treasury Bond issuance,” said Michael Ricafort, Chief Economist at Rizal Commercial Banking Corp.

Ricafort added that the market also drew support from the recent affirmation of the Philippines’ credit rating at A- with a stable outlook by Japan’s R&I, the highest in the country’s history and three notches above minimum investment grade.

“This remains a continued vote of confidence on the country’s economic and credit fundamentals from the point of view of international investors and creditors,” he said.

The peso traded close to P56.95 against the US dollar on 22 August, one of its strongest levels in almost a month, while the government bond market continued to draw support from the P507.2 billion Retail Treasury Bond (RTB) offering earlier this month. Of the total, P425.5 billion were raised in new funds and P81.7 billion through the bond exchange program. Bond yields also benefited from speculation that Philippine debt could be included in the JPMorgan Global Bond Index.

BSP signals policy easing

BSP Governor Eli Remolona reiterated that further monetary easing is possible this year, with at least two 25-basis-point cuts under consideration before 2025 ends. The BSP’s key policy rate currently stands at 5.25 percent, following the quarter-point reduction last June — its lowest in two and a half years.

Policymakers cite steady inflation, which has remained within the 2–4 percent target range for five consecutive months, as providing room to ease borrowing costs. Remolona also emphasized that while the BSP has been intervening in the foreign exchange market, such actions have been “modest” and aimed at smoothing volatility. He assured markets that the country’s foreign reserves remain “more than adequate” to guard against external shocks.

“With inflation remaining below the BSP’s 2–4 percent target for the fifth straight month, the central bank has greater leeway to cut policy rates further this year, which could help lower borrowing costs and support faster economic growth despite external risks,” Ricafort noted.

Despite Friday’s uptick, the PSEi still logged a weekly loss of 34.35 points or 0.5 percent, extending last week’s 0.4 percent decline. Market movements mirrored cautious trading in the United States, where stronger-than-expected manufacturing data reduced the odds of an imminent Federal Reserve rate cut. Investors worldwide are also awaiting Fed Chair Jerome Powell’s policy speech at the Jackson Hole Symposium on Friday, which could set the tone for global markets.

Meanwhile, global crude oil prices remain at their lowest levels since December 2021, easing inflation pressures and supporting the BSP’s view that monetary conditions can be loosened without undermining price stability.

What to watch

In the Philippines, attention will turn to the BSP’s rate-setting meeting on 28 August, alongside the release of the government’s budget balance data on the same day and the latest trade figures on 29 August. Seasonal investor caution is also expected during the “ghost month,” which runs from 23 August to 21 September.

Abroad, US economic data will dominate global sentiment in the coming days, with key releases including housing indicators, durable goods orders, the Conference Board’s consumer confidence index, GDP, jobless claims, and the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index. Markets expect the July PCE to remain steady at 2.6 percent year-on-year, reinforcing expectations that the Fed may begin easing policy later this year.

The Treasury’s bond issuance calendar is expected to further shape liquidity in the coming weeks. Following the August RTB sale, a P288.7 billion bond maturity is scheduled for 9 September, which could inject fresh funds into the market and spur renewed demand for government securities.

With these domestic and global factors in play, the BSP’s policy decision on 28 August will set the tone for the remainder of the year, with financial markets watching closely for the timing and scale of the central bank’s next move.