Philippine Finance Head Envisages Up to 100 Basis Points Interest Rate Cuts in 2024

Philippine Finance Secretary Benjamin Diokno anticipates potential interest rate reductions of up to 100 basis points in 2024, citing the country’s cooling inflation aligning with the central bank’s targets. In an interview with Bloomberg Television, Diokno projected that the Bangko Sentral ng Pilipinas’s target reverse repurchase rate could decrease from 6.5% to 5.5% by the year-end, with monetary easing likely commencing in the second half of the year. This forecast comes amid a broader regional sentiment favoring lower interest rates following signals from the US Federal Reserve indicating a policy shift.

Diokno’s perspective echoes a growing trend in the region, where leaders, such as Prime Minister Srettha Thavisin of Thailand, have called for central banks to consider rate cuts to address economic challenges. The Philippine official’s comments followed recent statements from the BSP, emphasizing that policy settings would remain “sufficiently tight” in the short term, given notable rice price increases in the past month.

Despite a December decline in headline inflation, moving within the central bank’s 2%-4% target after a 20-month overshooting period, policymakers expressed continued vigilance, citing lingering upward risks to prices. Diokno, who previously led the central bank, advocates a potential rate reduction, contrasting with current BSP Governor Eli Remolona’s hawkish stance.

Additional insights from Diokno’s interview include:

The Philippines isn’t rushing to borrow overseas in 2024, anticipating lower interest rates and planning to assess the market situation.

Gross domestic product (GDP) growth is expected to fall within the government’s revised target of 6.5%-7.5% for 2024.

Revenues are likely to align with targets for the current year and the next, with infrastructure spending comprising approximately 6% of GDP.

Diokno refrained from commenting on speculation about his potential replacement, citing confidentiality in his relationship with the president.

The peso experienced a 0.1% decline to 55.60 per dollar during midday trading, while the main stock index showed a 0.2% increase.

The timing and extent of rate cuts will influence the trajectory of the peso, which has appreciated nearly 2% in the past three months.

Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore, warned that a faster rate cut by the BSP compared to the Federal Reserve could jeopardize the peso’s recovery.

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