BSP rate cut likely next year, says DBS

MANILA, Philippines - DBS Bank of Singapore expects the Bangko Sentral ng Pilipinas (BSP) to cut interest rates next year as inflation continued to ease amid stable food prices and cheaper utility rates.

The investment bank was originally expecting the BSP to jack up interest rates by 25 basis points by the third quarter next year as inflation is expected to pick up due to the prolonged and severe El Niño weather condition.

“We no longer expect any rate hike from the BSP in the next year. Risks are now tilted towards a cut,” DBS said.

Inflation eased to a new record low of 0.4 percent in September from 0.6 percent in August, bringing the average inflation to 1.6 percent in the first nine months, lower than the two percent to four percent target set by the BSP.

On the other hand, the country’s gross domestic product (GDP) growth eased to 5.3 percent in the first half from 6.4 percent in the same period last year due to weak global demand. 

“Statements from BSP have been fairly consistent this year. Despite the softer inflation outlook, a rate cut doesn’t look imminent for now. Not as long as GDP growth momentum remains fairly strong, which is currently the case,” it said.

The BSP has kept interest rates for eight straight policy-setting meetings since October least year amid the benign inflation environment. The overnight borrowing rate is currently pegged at four percent and the overnight lending rate at six percent.

“The fact that some inflationary risks on food prices persist means that BSP is also likely to keep its tight policy stance,” DBS said.