An economist of HSBC forecasts the Bangko Sentral ng Pilipinas (BSP) to cut its key rates by 25 basis points (bps) to 5 percent in October this year.

The central bank’s target reverse repurchase (RR) rate was reduced by 25 bps for the second consecutive rate-setting meeting of the BSP’s policy-making Monetary Board (MB) last June 20 to 5.25 percent.

If the cut in October will materialize, it will be the third and last for the year, HSBC ASEAN economist Aris Dacanay said in a briefing Thursday.

Dacanay, however, remains open for additional reduction “if growth turns out to be lower than expected.”

"I think the Philippines has room to lower it below 5 percent. So, in other words, risks are to the downside,” he said.

HSBC forecasts the domestic economy’s output this year at 5.4 percent, below that of the government’s 5.5-6.5 percent target, but still the strongest projected for ASEAN.

In the first quarter, growth, measured by gross domestic product (GDP), rose to 5.4 percent from the quarter ago’s 5.3 percent. Year-ago level is higher at 5.9 percent.

HSBC forecasts domestic inflation to average at 1.8 percent this year, below the economic managers' 2-3 percent assumption.

“With inflation low, the BSP has a lot of room to cut rates. So much room that it was able to narrow last week its differential with the Fed (US Federal Reserve) by 75 basis points. And the economy, the financial markets, didn’t react,” he said.

The Fed’s current policy rate is between 4.25 and 4.5 percent, a 75-basis-point difference with the BSP, which last happened in 2022.

Dacanay said the Philippines has the lowest household debt-to-GDP ratio among the upper middle-income economies in the region at 10 percent, which makes it easier to further lift the economy.

“So the fact that the Philippines is not as leveraged as anyone else, there’s room to boost the economy monetarily,” he added.

PNA PHOTO