Bank of the Philippine Islands (BPI) lowered the chances of an interest rate cut during the Bangko Sentral ng Pilipinas’ (BSP) next policy meeting on August 15 after July’s hotter-than-expected inflation print.
The BSP is awaiting the release of gross domestic product data, which could either delay rate cuts if GDP exceeds expectations or justify an immediate cut if the data falls short.
A matter of when, not if
“The probability of a rate cut from the BSP in August has declined now that headline inflation is once again above its target,” BPI said.
“Nevertheless, we maintain our view that rate cuts are on the horizon given the favorable outlook for inflation,” it added.
Inflation outlook
On Tuesday, the Philippine government announced that headline inflation rose to 4.4 percent in July from 3.7 percent in June, exceeding the expected 4.3 percent.
Core inflation, excluding food and energy, dropped from 3.1 percent to 2.9 percent.
“Despite the recent uptick in inflation, the outlook remains favorable. Taking into account the latest data, we expect inflation to go down to 3.7 percent in August and 2.8 percent in September,” BPI noted.
Impact on the Philippine peso
BPI still expects interest rates to decrease later this year, though not significantly.
“The Peso may continue to strengthen, especially towards the end of the year if the Fed decides to cut its interest rates,” it noted.
“However, despite potential gains from a Fed rate cut, the Peso's appreciation might be more limited compared to other emerging market currencies given the substantial current account deficit of the country,” the lender added.
