BSP to take cue from US Fed for monetary easing, HSBC says

The Bangko Sentral ng Pilipinas (BSP) is expected to follow the Federal Reserve in terms of monetary easing this year, starting with a 25-basis point cut in the second quarter, the Hongkong and Shanghai Banking Corp. Ltd. (HSBC) said Wednesday.

In a briefing in Taguig City, HSBC economist for the Association of Southeast Asian Nations (ASEAN) Aris Dacanay said the banking giant expects the Federal Reserve to start cutting in June by 25 basis points.

"Our outlook is that the moment the Fed cuts, the BSP cuts to be in lockstep," he said, adding that the local central bank is expected to follow suit in policy easing both in terms of timing and in size.

The benchmark target reverse repurchase rate (RRP) was kept at 6.5% during the last Monetary Board policy meeting in December 2023, the highest in 16 years. The next policy meeting is scheduled on Feb. 12, 2024.

"We are now in an environment where rates are high for long, which of course, the BSP needs to take into consideration as well, and at the same time, we are in an environment where inflation tends to be higher due to trade barriers," Dacanay said.

Dacanay expected inflation to average 3.5% this year, and stay within the BSP's target range of 2.0% to 4.0% for most of the year, except for the second quarter when it could accelerate due to base effects, then pick up to an average of 3.8% in 2025.

This comes as inflation eased to 6.6% in April, 6.1% in May, and at 5.4% in March of 2023.

"On a year-on-year figure, it will break the target but we need to look at it on a sequentially annual basis, which is basically if you remove the base effects," Dacanay said.

"Right now, inflation momentum is running at 0.2% month-on-month, so if you annualize that sequentially, and if this month-on-month momentum continues on in the next 12 months, inflation would actually be 2.4%," he explained.

Inflation was recorded at 3.9% in December, the slowest print since February 2022's 3.0%. This brought the 2023 average inflation to 6.0%, still above the government target.

Moving forward, Dacanay said HSBC expects the Philippine economy to grow by 5.3% this year, the same growth it expects for 2023, but also among the highest in the Association of Southeast Asian Nations (ASEAN) just behind Vietnam’s 6.0% outlook.

"We had the most aggressive monetary tightening across ASEAN and if you look at the figures now, credit growth is at its lowest ever since the global financial crisis. Consumption is also the slowest," he said.

"Look at it this way — we had the biggest inflation problem in ASEAN, we had the tightest monetary policy in ASEAN, and yet we are at a soft line cause again, mainly because we had this very resilient Filipino people joining the labor force to make ends meet basically, and that is boosting the economy," he added.

Latest government data showed that there were 1.83 million unemployed Filipinos aged 15 and above in October 2023, down from 2.09 million the same month in 2022. — VDV, GMA Integrated News