DBS sees inflation tying BSP’s hands on rate action until Q4

ELEVATED inflation will likely prompt the Bangko Sentral ng Pilipinas (BSP) to delay its rate-cutting cycle to the fourth quarter, DBS Bank Ltd. said.

“Factoring in these drivers, we revise our 2024 inflation forecast to 3.7% year on year. Rising inflation and its impact on inflationary expectations, in the midst of a tight labor market is likely to keep the BSP from loosening financial conditions this quarter and the next,” it said in a report.

The BSP expects inflation to average 3.8% this year. In March, headline inflation accelerated for a second straight month to 3.7% from 3.4% in February.

The central bank has said that inflation may temporarily accelerate above the 2-4% target over the next two quarters.

“Global cues by way of a delayed start to the US rate cut cycle and resultant peso volatility will also prompt the BSP to maintain a defensive posture,” DBS said.

“In all, domestic and global risks are likely to keep the central bank from front-loading policy easing. We see an extended pause and delay our rate cut expectations to the fourth quarter of 2024,” it added.

The Monetary Board kept its key rate unchanged at a near 17-year high of 6.5% at its April meeting.

From May 2022 to October 2023, the BSP raised borrowing costs by 450 basis points. — Luisa Maria Jacinta C. Jocson