Goldman Sachs now expects the Bangko Sentral ng Pilipinas (BSP) to begin cutting its benchmark rate later next year, following the signals from the United States Federal Reserve. This adjustment in their forecast is in line with the recent FOMC meeting, where the Fed raised the bar for rate cuts next year.
Prior to the meeting, Goldman Sachs had predicted rate cuts from the Fed in the second quarter of 2024. However, they now anticipate these cuts to take place in the fourth quarter of 2024.
The FOMC’s updated rate projections suggest a decrease of just 0.5 percentage points in rates next year, compared to the three percentage points projected in June. As Southeast Asian countries typically align their policy rates with the Fed’s decisions, Goldman Sachs is adjusting its policy rate forecasts for other economies in the region as well.
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Specifically for the Philippines, Goldman Sachs notes that inflation remains above the BSP’s target band of 2 percent to 4 percent. In the near term, the risks to the BSP policy outlook are skewed in a hawkish direction. If inflation returns to the target band by the end of the year, the central bank is likely to keep the policy rate unchanged at 6.25 percent. However, if inflation eases and growth remains slow next year, the BSP could potentially reduce the policy rate before the Fed’s rate cuts.
Despite these projections, BSP Governor Eli Remolona Jr. stated that policymakers are considering a rate hike in November if supply shocks are significant enough.
READ: BSP chief ‘honestly’ eyeing November rate hike
In light of Remolona’s emphasis on maintaining policy rates through the first half of 2024, the expected Fed rate cuts, and the historical sensitivity of BSP policy to changes in Fed policy, Goldman Sachs has adjusted its forecast for policy rate cuts in the Philippines from the second quarter to the third quarter of 2024.
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