BANK of the Philippine Islands (BPI) expects the Bangko Sentral ng Pilipinas (BSP) to implement fewer rate cuts this year after inflation picked up slightly in April.
The listed lender now sees the central bank reducing interest rates by just 50 basis points (bps) this year, smaller than its previous forecast of 75 bps, it said in a note on Wednesday.
“We now expect a rate cut of around 50 bps this year, assuming the FOMC (Federal Open Market Committee) eases sometime in the second semester,” BPI said.
Philippine consumer price index (CPI) quickened to 3.8% year on year in April from 3.7% in March, preliminary data showed. Still, this was slower than the 6.6% print in the same month a year ago.
For the first four months, headline inflation averaged 3.4%, still below the BSP’s 3.8% full-year forecast and within its 2-4% target.
The central bank has said it expects inflation to overshoot its annual goal anew this quarter and next amid the impact of the El Niño dry spell on prices of key commodities like rice.
BSP Governor Eli M. Remolona, Jr. earlier said the central bank may begin to cut rates if inflation can ease to about 3% and stay within that range for several months.
Meanwhile, markets are pricing in 45 bps of cuts from the Fed this year, with a rate cut in November fully priced in, Reuters reported.
The Ayala-led bank added that if the BSP cuts earlier than the US central bank, this could add to inflationary pressures as the peso could depreciate further against the dollar.
“Moreover, the economy has been resilient despite the normalization of interest rates, with loan growth accelerating for the third straight month in February,” it said.
BPI has also cut its full-year inflation forecast to 3.5% from 3.7%, it said.
It added that inflation is likely to exceed 4% from May through July due to risks related to food, the weak peso, and oil prices, in line with the BSP’s expectations.
“However, the breach in the inflation target may be temporary and may be more benign than originally expected, with inflation likely to ease in the second half of the year,” BPI said.
The bank saw its net income grow by 25.8% year on year in the first quarter to P15.3 billion as higher revenues offset increased provisions and expenses.
BPI’s shares dropped by 60 centavos or 0.48% to end at P124.40 apiece on Wednesday. — A.M.C. Sy
BPI expects BSP to cut rates by 50 bps
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