MANILA - The Bangko Sentral ng Pilipinas may cut rates more aggressively in the remaining months of the year as it keeps up with the US Federal Reserve’s monetary easing, a Fitch Solutions unit said on Wednesday.

The Fed cut rates by 50 basis points in September, and BMI said the Fed is expected to cut rates further this year by another 75 bps for a total of 125 bps in 2024. The BSP meanwhile made a 25 bps cut in August.

“On this projection, we think that the BSP will have more policy room to maneuver with a 100 bps cut of its own,” BMI said.

Policymakers are starting to grow increasingly concerned about the economy’s health. Indeed, the authorities stated that economic growth could fall below the government’s target in 2025 and 2026 in its accompanying monetary statement, BMI added.

Last August, BMI cut its 2024 growth outlook for the country to 6 percent from 6.2 percent to 6 percent, citing weaker-than-expected momentum heading into the second half of the year

BMI noted that while Q2 2024 GDP growth accelerated to 6.3 percent year-on-year, surpassing consensus estimates, it fell short of BMI's 6.5 percent projection, raising concerns about the economy’s trajectory.

“We have highlighted that the economy is in need of support following Q2 GDP data. The boost received from a surge in investment activity will prove difficult to sustain against the backdrop of high interest rates. In the face of an economic slowdown, policymakers will likely seek to unwind restrictive policy settings to bolster growth at the earliest possible time,” BMI said.

In the coming months, the BSP may cut rates by another 75 bps and continue to ease monetary policy by cutting another 100 bps in 2025, BMI said.

On its next policy-setting meeting on Oct. 17, BMI said the BSP is seen to deliver a half percentage point cut or 50 bps to support the Philippine economy. The research group noted that Finance Secretary Ralph Recto, who also sits on the monetary board, raised the possibility of a 50bps cut in October at a media briefing on September 24. BMI said that inflation has also eased, which sets the stage for further monetary easing. 

The BSP's benchmark rate is expected to eventually settle at 4.5 percent next year, the same level before the pandemic, BMI said. 

Still, BMI said that while it is confident that the BSP will continue to loosen policy, the agency is less sure of its magnitude. 

"The October meeting could very well conclude with just a 25 bps cut if policymakers adopt a more cautious approach towards easing following cuts in the reserve requirement ratio," BMI said. 

While BSP Gov. Eli Remolona stressed that the adjustment in the Reserve Requirement Ratio is not a monetary policy tool, around 250bps worth of RRR cuts implemented last Sept. 20 give the BSP less flexibility to ease policy settings, BMI said.

"On top of that, our BSP forecast hinges on the Fed’s interest rate trajectory. If the Fed chooses to cut by 25bps in December instead of 50bps, the BSP could stand pat in December," it added.