MANILA — The Bangko Sentral ng Pilipinas (BSP) may cut interest rates in the second half of 2024, a subsidiary of Fitch Solutions said Friday.

"For next year, policymakers will be mindful of embarking on monetary loosening before the Fed does so, as it could exacerbate weakness in the peso," BMI said in a brief.

"We now think the Fed will only start cutting interest rates in H224 (second half of 2024), rather than Q224 (second quarter of 2024), and have similarly pushed back the timing of BSP cuts in 2024 to H224," it added.

The BSP on Thursday kept its benchmark target reverse repurchase rate steady at 6.25 percent. Earlier in the day, the US Federal Reserve held interest rates at a 22-year high, while predicting that lending rates will need to remain higher for longer to definitively cool inflation.

• BSP keeps benchmark rate steady at 6.25 percent
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The BMI said that one more 25-basis points hike "is not out of the question" because the US Fed has not completely ruled out the possibility of further tightening.

"We think that the BSP will hike in lockstep with the Fed to maintain its external stability. The peso has depreciated by 2.1 percent in the year-to-date against the greenback and is currently trending towards its one year-low of PHP59.50/USD," it said.

The BMI added that oil and food prices could keep inflation high.

"While the sustained decline in oil prices since January this year should in theory feed through eventually and help bring consumer prices off the boil, the historical relationship between oil prices and inflation has weakened significantly since the pandemic began," the firm said.

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"Moreover, there are heightened uncertainties around food prices in light of El Niño's possible impact on food production, as well as India's rice export ban," it added.

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