In a report dated Oct. 1 this year, BMI is projecting the BSP to ease rates by another 75 basis points in 2024, including a potential 50 bps cut in its October policy meeting.
It also expects rates to go down by another 100 bps in 2025 to 4.5 percent, bringing the interest rate back to the prepandemic level.
It’s about the economy
The BSP kicked off its easing cycle by 25 bps last August, ahead of the US Federal Reserve.
“The BSP’s decision to lower interest rates ahead of the Fed is a sign that policymakers are starting to grow increasingly concerned about the economy’s health,” BMI said.
“Indeed, the authorities stated that economic growth could fall below the government’s target in 2025 and 2026 in its accompanying monetary statement,” it added.
What this means for stocks
COL Financial Group chief equity strategist April Lynn Tan is among those who remain cautious about the recent bull market, which recently pushed the Philippine benchmark index above 7,400.
But she noted that aggressive interest rate cuts—similar to those made by global central banks during the COVID-19 pandemic—will support positive sentiments and help sustain the ongoing rally.
“The Fed could also do a 2020 2.0,” she said, referring to central bank intervention during the global health crisis. “Don’t fight the Fed redux.”
US Fed’s next move
In its report, BMI is projecting the Fed to cut interest rates by another 50 bps in December.
This will give the BSP space to also reduce rates moving into 2025, which is expected to go down to 4.5 percent.
“This would represent 200 bps worth of cuts from the peak to the trough, bringing interest rates back to pre-pandemic levels,” BMI said.
“Meanwhile, we are expecting the Fed to cut by a total of 250 bps throughout this easing cycle,” it added.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
