BSP policy rate seen to remain at 16-year high until Q3 2024

The Bangko Sentral ng Pilipinas (BSP) is expected to hike rates to a fresh 16-year high later this year and keep them at the same level until the third quarter of 2024 when rate cuts would be implemented, an official of the Hongkong and Shanghai Banking Corp. Ltd. (HSBC) said Wednesday.

According to HSBC chief Asia economist Frederic Neumann, the target reverse repurchase (RRP) rate is expected to be hiked by 25 basis points to 6.50% by the end of the year due to challenges the country faces.

This comes from the current 6.25% rate which has been in place since March 2023, and is the highest since the benchmark rate was kept at 7.5% in May 2007.

“Inflation is one of them, the current account deficit is another, that will require the BSP to keep rates higher for longer, just like we see one more rate hike coming through for the BSP in the fourth quarter,” he said in a briefing in Makati City.

“Then the BSP will hold, but we don’t see the possibility of dramatic cuts, and that’s actually in line with what we see elsewhere in the world,” he added.

Inflation clocked in at 5.3% in August, faster than the 4.7% rate seen in July, and higher than the government’s target range of 2.0% to 4.0%.

Just last week, the BSP hinted at the possibility of another rate hike later this year, as it hiked its 2023 inflation projection to 5.8% due to spillovers from weather disturbances, higher crude oil prices, and the depreciation of the peso.

HSBC expects inflation to average 5.9% this year, higher than its earlier projection of 5.5%. It also hiked its projection for 2024 to 3.7% from 3.6%.

“Over the next two years, there is a risk that inflation might trend up again once it’s calmed down, because its stickiness, underlying the inflation process in the Philippines, points towards price pressures continuing to flow,” Neumann said.

“But this is actually something that is a global phenomenon, it’s not just necessarily specific to the Philippines,” he added.

Neumann said the BSP could start cutting rates by the third quarter of 2024 with a 50-basis point cut, followed by another 100 basis points in 2025.

HSBC expects economic growth for the year at 4.8%, followed by 5.2% in 2024, and 5.8% in 2025.

The inter-agency Development Budget Coordination Committee (DBCC) expects the country’s gross domestic product (GDP) to grow by 6.0% to 7.0% this year, and between 6.5% to 8.0% from 2024 to 2028. —VAL, GMA Integrated News