By Kosaku Narioka and Fabiana Negrin Ochoa
The Philippine central bank held its policy rate steady as it continues to guard against inflation risks, but the meeting has stirred speculation that its hawkish stance is softening.
Bangko Sentral ng Pilipinas kept its benchmark overnight reverse repurchase rate unchanged at 6.50% on Thursday, extending a policy pause stretching back to November 2023. It also maintained its benchmark lending rate at 7.00%.
All nine economists polled by The Wall Street Journal had expected that the central bank would stand pat.
Gov. Eli Remolona said Thursday that risks to the country's inflation outlook remain tilted to the upside, flagging potential pressures from food and oil prices, among other factors.
The country's consumer-price index rose 3.8% in April from a year earlier, up from a 3.7% increase in March. That compares with the central bank's inflation target range of 2%-4%.
But the central bank seemed less concerned about inflation than before, lowering its inflation forecast for the year. It now expects inflation to come in at 3.8% versus the 4.0% predicted at the previous meeting.
Thursday's decision comes as many central banks in Asia wait on the policy sidelines, hesitating to move on rates as they grapple with currency depreciation, sticky inflation--or in some cases deflation--and ever-shifting expectations about the start of easing in the U.S. Many economists think central banks will be reluctant to cut before the Federal Reserve does, pushing back the timing of easing in Asia.
But some analysts see emerging signs that the tide might be turning.
Rising prospects of a cooling U.S. economy and imminent Fed rate cutes have Nomura research analysts becoming more convinced that the global rate-cutting cycle is revving up.
Between now and the end of June, Nomura forecasts rate cuts by China, Thailand and others, with many others leaning dovish, Nomura analysts Rob Subbaraman and Yiru Chen said in a note.
On Thursday, BSP's policy board said that inflation expectations remain well-anchored, and that the Philippine economy's growth prospects are still largely intact even as recent data signal some moderation under tight financial conditions.
Gross domestic product expanded 5.7% in the first quarter from the same period a year earlier, undershooting consensus views as key parts of the economy cooled in large part due to high borrowing costs.
BSP kept rates at a 17-year high but also opened the door to a cut, ING economists said.
The dovish tilt comes a day after the Philippine finance secretary, Ralph Recto, indicated that the central bank could start cutting rates by the final quarter of the year, ING senior economist Nicholas Mapa said in a note.
ING expects the Philippines central bank will cut once the Federal Reserve does. Penciling in the start of U.S. easing by September puts ING's call for BSP rate cuts to begin in October, if inflation continues to trend lower.
BSP lowering its inflation forecast and hinting at cuts in the third or fourth quarter backs Capital Economics' view that easing is in the pipeline.
While inflation is likely to stay high for the next few months, it should fall in the second half of the year, Capital Economics senior Asia economist Gareth Leather wrote in a note.
"Today's dovish meeting gives us more confidence that the BSP will start to loosen policy soon," he said.
Write to Kosaku Narioka at kosaku.narioka@wsj.com
(END) Dow Jones Newswires
05-16-24 0524ET
