J.P. Morgan Sees BSP On Hold For The Remainder Of 2023,  Post Yesterday's Decision

J.P. Morgan see BSP on hold for the remainder of 2023 post yesterday's pause. They do see scope for a RRR cut though, potentially as soon as July.

• J.P. Morgan: "The BSP held rates owing to the downtrend in the headline CPI inflation, while acknowledging that core inflation has only eased modestly in recent months in comparison. Interestingly, the central bank continues to characterize the risk around the inflation outlook as “largely tilted towards the upside” owing to supply-side constraints on food items, adjustments in wages and transport fares, and potential impact from El Nino later this year. That being said, today’s downward revisions in the BSP’s headline CPI forecast this year to 5.5%y/y from 6.0% previously speaks to the increased conviction that headline CPI will move back into the target range by late 3Q23, with the expectations that core CPI could converge to this trend in due course. However, in our view, core CPI could remain sticky in the coming months given the tightness in the domestic labor market evident in the underlying momentum gains in services-related inflation."
• "BSP to stand pat on policy rate, RRR reduction on the cards next. Barring any supply-side shocks that could illicit a sharp upward revision to the the CPI forecasts, we believe the BSP will likely remain on hold this year. Given the trend decline in headline CPI, the BSP is poised to reduce the reserve requirement ratio (RRR), currently the highest in the ASEAN region at 12% for larger banks. The timing of this could come as early as July on the expiration of the COVID policy measure, that permits loans to micro-, small, and medium enterprises (MSMEs) to be counted as part of banks’ compliance with reserve requirements, on June 30."