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Business

Policy easing likely in Q4, says Recto

Louise Maureen Simeon - The Philippine Star
Policy easing likely in Q4, says Recto
Finance Secretary Ralph Recto.
STAR / File

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) is expected to keep rates unchanged today, but rate cuts may happen only toward the end of the year.

Finance Secretary and Monetary Board member Ralph Recto is in line with the consensus that the BSP will keep key interest rates steady for the fifth straight meeting today.

“We will take a look at the data. But so far, the way I see it, it will be steady,” Recto told reporters on the sidelines of the Development Budget Coordination Committee legacy book launch late Tuesday afternoon.

The finance chief said the peso’s recent performance is also a factor behind rates staying the same for now.

“But moving forward, I expect interest rates to go lower. Possibly within the end of the year, by the fourth quarter, there could be a reduction in rates,” he said.

Last month, the Monetary Board kept key policy rates unchanged at a near 17-year high of 6.50 percent, as risks to the inflation outlook remain tilted toward the upside.

Other analysts are expecting a policy easing as early as August while some are also leaning toward the conservative side and penciling in a rate cut by end-2024.

“It all depends on inflation. We all go back to inflation. And the expectations for inflation this year are lower than expected,” Recto said.

“But it will still be sticky. I think it will be a little higher next year also. So we will have to see,” he said.

Inflation picked up yet again to 3.8 percent in April, marking the third consecutive month of uptick, but still within the BSP’s two to four percent target band.

For the four-month period, the headline rate averaged 3.4 percent.

The expected rate cut by the BSP may lead to positive market movements including better corporate earnings, and the gross domestic product expanding by at least six percent.

The private financial sector has been banking on policy easing to boost growth this year.

Apart from economic growth, the country’s investment climate also hinges on the normalization of policy rates here and abroad.

Since the pandemic, the investment climate in the Philippines has been gloomy. This was exacerbated by the consecutive monetary policy tightening of central banks around the world in a bid to arrest inflation.

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