Philippine Shares Sideways Ahead of Central Bank Meeting

Philippine Stock Exchange index drops 0.46% amid higher April consumer price index and weaker Q1 GDP growth. Bangko Sentral ng Pilipinas' policy meeting on May 16 is expected to leave interest rates unchanged despite rising inflation.

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Aqsa Younas Rana
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Philippine Shares Sideways Ahead of Central Bank Meeting

Philippine Shares Sideways Ahead of Central Bank Meeting

The Philippine Stock Exchange index dropped by 0.46% to 6,511.93 on Friday, amid higher April consumer price index and weaker first-quarter gross domestic product growth. Ahead of the Bangko Sentral ng Pilipinas' (BSP) policy meeting on May 16, shares are expected to move sideways.

Why this matters: The BSP's policy decisions have a direct impact on the Philippine economy, influencing inflation rates, interest rates, and ultimately, the country's growth trajectory. As the central bank navigates the delicate balance between stimulating growth and controlling inflation, its decisions will have far-reaching consequences for businesses, investors, and individuals alike.

The Philippine economy grew 5.7% in the first quarter of 2024, lower than the expected 5.9% forecast. The growth rate is driven primarily by net exports, which surged by 7.5%. However, consumer spending restrained growth, with real GDP up by only 4.6% in Q1 2024.

Inflation is expected to rise, which could offset the initial effects of monetary easing. The headline GDP can be inflated by understating inflation, which widens the gap between the real and nominal GDP. As Brandon Smith notes, "GDP is the most common out of context stat used by governments to convince the citizenry that all is well."

Global banking giant Citi has sees its forecast, expecting smaller interest rate cuts from the BSP in the next two years due to a more cautious stance on inflation risks. Nalin Chutchotitham, economist for the Philippines at Citi, said the central bank's Monetary Board is expected to deliver a shallower 75-basis-point rate cut for this year and next year, compared to an earlier projection of 100 basis points.

Citi sees the BSP slashing key interest rates by 25 basis points in August, October, and December, with a total rate cut of 75 basis points in 2024 and 2025. The BSP is expected to preserve a 100- to 125-basis-point differential to support the peso. "We continue to expect rate cuts in August 2024, but now we only see a 75-basis-point cut in both 2024 and 2025 due to BSP's more cautious stance on inflation risks," said Chutchotitham.

Citi continues to monitor upside risks from tightness in food supply and potential larger-than-expected minimum wage hike, as inflation picked up slightly to 3.8% in April. The global banking giant has retained its inflation forecasts at 3.6% for 2024 and 3.3% for 2025. "We expect no further rate hikes by the BSP, without significant new shocks. But the BSP would likely retain its hawkish stance to help anchor inflation expectations," added Chutchotitham.

The BSP is expected to leave interest rates unchanged at its policy meeting on May 16, despite rising inflation. Investors will be closely watching the central bank's policy decisions and forward guidance for clues on the future direction of the Philippine economy and review of the stock market.

Key Takeaways

  • Philippine Stock Exchange index drops 0.46% to 6,511.93 amid higher CPI and weaker GDP growth.
  • BSP's policy decisions impact inflation rates, interest rates, and economic growth.
  • Philippine economy grows 5.7% in Q1 2024, driven by net exports, but restrained by consumer spending.
  • Citi expects smaller interest rate cuts from BSP due to inflation risks, forecasting 75-basis-point rate cut in 2024 and 2025.
  • BSP likely to leave interest rates unchanged at May 16 policy meeting, despite rising inflation.