In a statement, the Ayala-controlled financial institution said Friday’s release of the latest consumer price index — which showed a decline in June to 3.7% from the previous month’s 3.9% — may even become more significant over the near term with the implementation of rice imports tariff reductions which the government will implement this month.
Despite this, BPI said expects the central bank’s rate cuts to be “modest due to domestic and external constraints.”
BPI forecasts that the BSP will lower its closely tracked overnight rates from 6.5% to 6.0% this year.
The central bank’s cautious approach will influenced by the need to manage the country's current account deficit and maintain a healthy balance between foreign reserves and debt, BPI said.
A consequence of these rate cuts could be a further weakening of the peso in the short term, driven by a narrowing interest rate differential with the United States, it added
It explained however that, despite the potential depreciation, the BSP seems ready to accept this trade-off to support economic growth.
The peso's outlook may improve towards the end of the year if the US Federal Reserve also cuts rates, though gains may be limited by the Philippines' significant current account deficit, BPI said.
