• The Monetary Board of Bangko Sentral ng Pilipinas (BSP) cut its Target Reverse Repurchase (RRP) rate by 25 bps to 6.00% during its sixth Monetary Board meeting of the year, in line with house and market expectations
  • The interest rates on overnight deposit and lending facilities were also reduced to 5.50% and 6.50%, respectively.
  • BSP statement: "On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP's shift toward less restrictive monetary policy." This reflects the central bank's confidence in price stability as inflation has trended downward in recent months. However, BSP is maintaining a measured approach to easing, aligned with its mandate to ensure price stability conducive to sustainable economic growth and employment.
• Stable inflation outlook reduces the need for a restrictive monetary policy
  • GDP: No change to its GDP growth target. BSP expects domestic economic growth to remain strong, driven by improved prospect for household income and consumption, investments, and government spending. The growth target remains at 6.0% - 7.0%.
  • Inflation: BSP expects price pressures to stay manageable, within the government's target of 2.0% - 4.0%. Its risk-adjusted inflation forecast for 2024 has eased to 3.1% from 3.3% previously, while the forecast for 2025 and 2026 have slightly increased to 3.3% and 3.7%, respectively. According to BSP, "this outlook is safeguarded by well-anchored inflation expectations". However, it states that "the balance of risk to the inflation outlook for 2025 and 2026 has shifted toward the upside". This mainly due to potential electricity rate adjustments and higher minimum wages outside Metro Manila.
  • Currency: So far, the peso remains weak against the USD. It depreciated by 4.3% to 57.8 on October 15 compared to the end of last year. This decline is more significant than that of the rupiah (-0.9%), and contrast with the appreciation of the ringgit (+6.2%) and baht (+4.6%).
• We expect another 25 bps cut in December, as BSP has ample room for further monetary easing
  • We expect the BSP to consider a further rate cut in its final meeting of the year, in line with other central banks from advance economies that are shifting towards policies aimed at supporting domestic growth. While the peso has weakened due to rising geopolitical tensions and uncertainty around US Fed policy, we believe BSP will likely focus on bolstering growth, especially as inflation trends within its target range. Additionally, current policy rates, which are above pre-pandemic levels, are considered restrictive and could dampen domestic demand.
  • USDPHP year-end forecast (56.0; 2023: 55.4): Year-end forecast remains unchanged, as the peso has depreciated above the 57.0 mark against the USD following the escalation in global geopolitical tensions. However, we anticipate slight appreciation toward year-end, driven by expectations of further rate cuts from the US Fed.

Source: Kenanga Research - 17 Oct 2024