The BSP's tightening cycle may be nearing its end, as Standard Chartered Bank predicts a shift towards rate cuts by mid-2027. This prediction is based on the assumption that the country's sluggish growth will temper demand-driven inflation, prompting a 'wait-and-see' approach from the BSP. Jonathan Koh, a senior economist at Standard Chartered, highlights the potential for a close call between a hold and a rate hike at the upcoming policy meeting, emphasizing the need to monitor oil prices and the peso-dollar exchange rate.
The recent GDP growth figures have been underwhelming, with the second quarter's 2.3% growth being the slowest since the pandemic. This slowdown is attributed to the lingering effects of the flood control graft scandal and subdued consumer spending due to the Middle East war. However, Standard Chartered forecasts a second-half recovery, contingent on the government's budget dispersal and the absence of volatile oil prices and high food prices due to El Niño.
Inflation, which peaked at 6.8% in the second quarter, has shown signs of easing, with July's inflation rate at 6.2%. This trend suggests that the BSP might start easing rates next year, with potential 25-basis-point cuts in the second and third quarters. The central bank's commitment to curbing inflation remains steadfast, but the weak economic growth in the second quarter allows for a less aggressive approach.
The peso's performance is also noteworthy, with Mr. Koh predicting a range of P61 to P62 per dollar until the end of the year. The US Federal Reserve's decision to hold rates steady is expected to support the peso, potentially leading to a slight decrease in the dollar-peso exchange rate. The peso's weakness, as evidenced by its all-time low against the greenback, highlights the challenges faced by the BSP in managing inflation and currency stability.
In conclusion, the BSP's tightening cycle may be coming to a close, with a potential shift towards rate cuts and a 'wait-and-see' strategy. The country's economic challenges, including sluggish growth and inflation, require careful monitoring and a balanced approach from the central bank. The future of the BSP's monetary policy remains uncertain, but the current outlook suggests a gradual transition towards a more accommodative stance.
