By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas’ (BSP) tightening cycle may be over as the country’s sluggish growth will likely soften demand-driven inflation, with rate cuts on the table for mid-2027, Standard Chartered Bank said.
Jonathan Koh, Standard Chartered’s senior economist and foreign exchange (FX) analyst for Association of Southeast Asian Nations (ASEAN), said the BSP may adopt a “wait-and-see” approach while assessing the movements of oil prices and the peso-dollar exchange rate.
“(B)ecause growth is soft, I think that the demand inflation is probably going to be softer. And from that perspective, I think that the BSP can potentially actually wait and see,” Mr. Koh told a press briefing on Friday.
“So, I took my August hike call off the table last week. I do recognize it’s going to be a close call. I think that the BSP is probably going to be watching oil prices as well as peso performance in the lead-up to the meeting,” he added.
Mr. Koh said this month’s policy meeting could be a close call between a hold and a rate hike, particularly if renewed price pressures worsen the inflation outlook.
“However, one month of softer inflation does not yet establish a sustained disinflationary trend, particularly as both measures remain above BSP’s target range. We therefore expect a close decision between a hike and a pause,” Mr. Koh and Standard Chartered Chief Economist and Head of FX for ASEAN and South Asia Edward Lee said in a report.
Standard Chartered’s latest policy call came after the dismal second-quarter gross domestic product (GDP) growth prompted the bank to slash its full-year forecast to 3.5% from 4% for 2026.
In the second quarter, GDP growth slowed to a post-pandemic low of 2.3%. Excluding the pandemic, it was the slowest growth in over 16 years.
The slowdown was largely driven by the lingering effects of last year’s flood control graft scandal on public construction and investments as well as subdued consumer spending as the Middle East war spiked prices.
Still, Standard Chartered is projecting a second-half recovery for the Philippines, although Mr. Koh said risks remain from volatile oil prices, potentially high food prices due to El Niño, and the government’s budget plan.
“As long as we don’t see that, I do think that the Philippine economy is probably going to recover in the second half of the year. Of course, as I noted, I think some part of it is going to be dependent on whether or not the government will be able to disperse the budget,” Mr. Koh said.
Standard Chartered likewise sees inflation averaging 5.9%, slower than its initial forecast of 6.5% amid moderating price pressures. Mr. Koh said the headline print likely peaked in the second quarter when it averaged 6.8%, well above the BSP’s 3% target.
However, inflation eased for a third consecutive month to 6.2% in July, bringing the year-to-date clip to 5%.
For Mr. Koh, the BSP could start easing next year, with a 25-basis-point (bp) cut each in the second and third quarters.
“So, in terms of the BSP itself, at the moment, my call, which I think is probably non-consensus, is I don’t expect the BSP to hike in August or for the rest of the year, and I’m actually looking for rate cuts in 2027,” he said.
Since it began tightening in April, the central bank has delivered 50 bps in rate hikes, raising the benchmark policy rate to about a one-year-high of 4.75%.
Last week, BSP Governor Eli M. Remolona, Jr. said their inflation fight is still on as they have yet to see a sustained disinflation trend, with unpredictable price shocks requiring their vigilance.
However, he added that the weak economic growth in the second quarter means they can be less aggressive in curbing inflation, especially as expectations prove relatively well-anchored.
The central bank has repeatedly signaled its commitment to steering inflation back to its target using all necessary monetary policy actions.
Its latest projections show inflation could breach its target for three straight years at 6.4% this year, 4.5% in 2027, and 3.1% in 2028.
PESO
Meanwhile, Mr. Koh expects the peso to range between P61 and P62 per dollar until yearend, with a hold by the US Federal Reserve likely to support the peso.
“Now, our view is no Fed hike,” he said. “And if, let’s say, our view really pans out, that means that your dollar should actually go lower. So, that could potentially help in terms of dollar peso moving slightly lower towards the end of the year as well.”
At its latest policy review in July, the Fed left its benchmark rates unchanged for a fifth straight meeting at the 3.5%-3.75% range.
Meanwhile, the peso averaged over P60 versus the greenback as of July from the P58- to P59-a-dollar level prewar.
It sank by 9.7 centavos to close at a new all-time low of P61.847 against the greenback on July 24, breaking its previous record of P61.75 on July 23, Bankers Association of the Philippines data showed.
As of end-July, the local unit stood at P61.432 versus the greenback, about 7.2% or P4.126 weaker than P57.306 in the same period last year, according to central bank data.
