Sell-Side Views Post BSP, Still Dependent On Fed Easing
An update from banks ING and HSCB below. Both banks see the first BSP rate cut as still dependent on when the Fed easing cycle commences. The BSP was slightly dovish yesterday, with Governor Remolona noting the BSP could cut as early as August.
ING: "A day after Secretary of Finance Ralph Recto indicated that the BSP could begin rate cuts by the fourth quarter, Remolona took on a more dovish tilt. The governor shared that we could see possible rate cuts as early as August after CPI inflation surprised on the downside for April. Despite this recent shift in tone from the previously hawkish Remolona, we hold on to our previous expectation that the BSP can only cut policy rates ASAF – As Soon As the Fed (does). Given ING's house call that the Federal Reserve will cut policy rates by September, we expect the BSP to begin its easing cycle at its October meeting should inflation continue to trend lower. The PHP held on to gains after the BSP kept rates at a 17-year high."
HSBC: "Despite the market's repricing of the Fed rate cuts, the BSP didn't need to follow the Bank of Indonesia who hiked its policy rate to help support the Rupiah. Not only does the BSP have an abundance of reserves, but it also has a good track record of defending the Peso and mitigating any volatility in the currency (Asian FX Focus, 10 May 2024). Headline inflation in April also surprised to the downside and there was no urgent need for the BSP to hike its policy rate today.
In the press statement, the BSP was less hawkish than the previous meeting, but remained slightly hawkish overall, citing upside risks to the inflation outlook and strong growth conditions. We believe this was strategic in case global markets reprice Fed rate cuts again to a later date.
We continue to expect the BSP to only cut after the Fed. Our baseline scenario is for the Fed to begin its easing cycle in 4Q 2024, starting with a 25bp rate cut. In this regard, we also expect the BSP to do its first 25bp policy rate cut in 4Q 2024 to 6.25% by year-end. This is roughly in line with Governor Remolona's statement that the BSP will likely cut in the 2nd half of the year (either in 3Q or 4Q this year)."