J.P. Morgan Still Expects 100bps Of Cuts in H2 2024

The US bank maintains its forecast for 100bps in BSP cuts in H2, but this is predicated on the Fed commencing its easing cycle around mid year.

J.P. Morgan: "In our view, the disinflation process remains intact, driven by the fading of previous supply-side shocks (e.g., oil, commodities) and currency depreciation, which collectively explain a significant portion of price fluctuations in the past. Our model projects headline inflation to stay within the 2%-4% target range throughout 2024 although it is subject to upside risk from elevated rice inflation and potential administrative price adjustments. In this regard, the five-year rice agreement with Vietnam is potentially a significant tailwind. Based on news reports, Vietnam has agreed to supply 1.5-2.0 million metric tons of rice per year at a “competitive and affordable price”. This represents 50-67% of Philippines’ import needs, and depending on the terms of trade, could incentivize private sector importers to release the supply to the domestic market. We retain our 2024 headline inflation estimate of 3.4%, with base effects pushing up CPI to above target temporarily in mid-2024 before retreating to the 3.0-3.5% handle in 2H24.

Maintain 100bps rate cut in 2H24, predicated on Fed easing cycle starting mid-2024 – The relatively hawkish rhetoric likely reflects the central bank’s cautious stance with regards to inflation and external conditions. But if our sanguine inflation outlook materializes, BSP should have room for easing, from a forward-looking real policy rate standpoint. We maintain our view that the central bank will deliver a 100bp rate cut in 2H24, predicated on the Fed starting an easing cycle in mid-2024."