Philippines: Another BSP rate cut seen after Fed easing

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The Bangko Sentral ng Pilipinas (BSP) is expected to deliver another 25-basis-point interest rate cut this year as it will be hard-pressed to not follow suit with the US Federal Reserve.

Gotianun-led East West Banking Corp. welcomed the BSP's recent decision to slash key rates by 25 basis points a few weeks ago, its first time to do so since November 2020.

On the sidelines of the bank's EasyWay mobile application launch EastWest Bank CEO Jerry Ngo said policy easing was important particularly in terms of the country's economic growth.

The BSP eased monetary policy ahead of the Fed. Market consensus is for the Fed to pencil in a 25-basis-point rate cut next month and in November and a larger one in its last meeting in December.

Ngo said the Fed has become a bit more dovish in its pronouncement as the US started to see inflation coming down, allowing the country to find a good landing.

'Persistently high interest rates will have an impact on the real economy at some point,' Ngo told reporters.

As such, the bank expects that the BSP will deliver another 25-basis-point cut once the Fed does so.

'I think it would be very hard-pressed for the BSP not to follow suit. You cannot just watch what's going on in the Fed. We will probably have to participate in that because the rest of the other central banks will also start moving,' Ngo said.

'People are starting to gravitate to a 25-basis-point cut to find the right equilibrium. And I think that's what's going to happen. More importantly, the yield curve is now starting to reshape,' he said.

Ngo said being a consumer-focused bank, EastWest is a negatively-gapped balance sheet which means it has long-term assets that are priced on a fixed basis.

As funding costs come down, its margins get higher which is beneficial to the bank.

EastWest estimates that a 25-basis-point cut will result in an improvement on the bank's net interest margin of between five and 10 basis points.

'But I think what's more important is that it will also lighten the general cost. Because the new bookings now will be based on the lower funding costs,' Ngo said.