The Bangko Sentral ng Pilipinas ( BSP ) may slow the pace of interest rate cuts this year due to a hawkish outlook for US Federal Reserve rate reductions, according to an HSBC economist. Aris Dacanay, HSBC Global Research economist, told reporters that the BSP , mindful of Fed moves and foreign exchange volatility , will likely cut rates in alternate rate-setting meetings.
He emphasized that the BSP cannot cut rates excessively, falling below the Fed, as it could introduce risks, citing the peso's depreciation to 59 against the US dollar in October 2022 when the BSP was seen as lagging behind aggressive Fed rate hikes. Dacanay added that the peso could weaken beyond 59:$1 this year, with risks potentially peaking in the second quarter. However, he expects the peso to be more resilient compared to other regional currencies. The Fed indicated last month that it might only cut rates by 50 basis points this year due to a strong US labor market and persistent inflation. Dacanay believes the Philippine central bank will likely implement 75 basis points of reductions over 2025, bringing its benchmark rate to 5.0 percent in the third quarter. He expects the BSP to follow the Fed's easing cycle one-to-one, initially forecasting the BSP to reach a policy rate of 5.0 percent by the second quarter of 2025
BSP Federal Reserve Interest Rate Cuts Peso Foreign Exchange Volatility
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