THE Bangko Sentral ng Pilipinas (BSP) could reduce rates by up to 150 basis points (bps) this year, its survey of private sector analysts showed, as inflation is likely to fall within the 2-4% target range.
In the Monetary Policy Report for May 2024, the results of the BSP’s survey showed analysts expect the policy rate to be reduced by 25 bps to 150 bps by yearend.
“The results of the survey showed that most of the analysts anticipate current monetary policy settings to remain unchanged in Q2 2024,” it said.
The Monetary Board earlier this month kept its benchmark rate at a 17-year high of 6.5% for a fifth straight meeting. Its next policy review is on June 27.
For the second quarter, most analysts anticipate monetary policy settings to remain unchanged.
“For the third quarter of 2024, the majority of the analysts foresee policy settings to remain unchanged, although about the same number of respondents expect a 25-bp cut in the policy rate during the period,” the BSP said.
BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board’s first rate cut could be delivered in August, with possibly another cut before the end of the year.
The central bank could cut by up to 25 to 50 bps this year, he added.
“For 2025, BSP is seen to further loosen its policy stance by a range of 25 to 250 bps. For 2026, analysts expect an additional reduction of about 50 to 150 bps in the policy rate,” the central bank said in the report.
Meanwhile, the survey showed that inflation expectations were “well-anchored.”
“Relative to the February 2024 [report], the shape of the May 2024 BSP survey of external forecasters (BSEF) probability distribution for analysts’ inflation forecasts for 2024 and 2025 has narrowed, implying an increased probability that inflation will settle within the 2-4% target band,” it said.
“This could indicate a further anchoring of inflation expectation.”
Analysts’ mean inflation forecast for this year was at 3.7%, lower than their previous 3.8% estimate. This was higher than the BSP’s 3.5% baseline forecast for 2024 but within the 2-4% target.
Inflation quickened for a third straight month to 3.8% in April. For the first four months, headline inflation averaged 3.4%.
“Analysts expect within-target inflation over the policy horizon, although settling at the upper end of the target range as uncertainty lingers. Upside risks continue to dominate due mainly to supply chain disruptions,” the BSP said.
The survey showed that upside risks to inflation include high food and oil prices, the effect of the El Niño dry spell and the possible impacts of La Niña.
On the other hand, downside risks cited include easing food and nonfood inflation and waning inflationary pressures.
“Based on the probability distribution of the forecasts provided by 15 out of 20 respondents, there is a 77.2% chance (from 71.5%) that inflation will settle within the 2-4% target range in 2024,” the BSP said.
Meanwhile, the survey showed that there is a 22.8% chance (from 28.3%) that inflation could breach the upper end of the target.
The central bank earlier said inflation could temporarily accelerate above the target from May until July due to positive base effects.
“Meanwhile, expectations for 2025 and 2026 remain slightly above the midpoint of the inflation target range,” it added.
The BSP expects inflation to average 3.3% in 2025. — Luisa Maria Jacinta C. Jocson
