Faster inflation could delay interest rate cuts – BDO

April 5, 2024 | 12:00am

MANILA, Philippines — Faster inflation could delay monetary policy rate cuts from the Bangko Sentral ng Pilipinas (BSP), according to an official from BDO Trusts and Investments, the investment arm of BDO Unibank Inc.

“When inflation begins to spike again as we saw in February and as we will see on Friday, then that delays the interest rate cut view because central banks will not cut interest rates if inflation is moving up,” BDO Trust and Investments senior vice president and chief investment officer Frederico Rafael Ocampo said in a briefing yesterday.

According to Ocampo, the  BSP could deliver two or three rate cuts this year by 25 basis points each. This would bring the target reverse repurchase rate to as low as 5.75 percent from the current 6.5 percent.

The BSP is also seen to move in tandem with the US Federal Reserve to maintain the interest rate differential of the Philippines with the US, preventing any depreciation pressures for the peso in return.

“The peso could appreciate to the 54 to 53 (per dollar) level because the Fed will not be raising interest rates aggressively and that will affect the dollar strength globally,” Ocampo said.

He also said the country’s current account and trade deficits would likely narrow this year.

Ocampo also told reporters that March inflation would likely pick up from February’s 3.4 percent amid oil price hikes and elevated rice prices.

“I’m fearful that the number will be higher than market expectations,” he said.

BSP Governor Eli Remolona Jr. earlier said that inflation could accelerate to 3.9 percent in March. Based on its monthly forecast, the central bank said inflation could settle within the range of 3.4 and 4.2 percent.

Ocampo also sees the Philippine economy growing by 5.9 percent this year, a tad faster than the adjusted 5.5 percent last year, but still below the government’s revised six to seven percent target for 2024.

Meanwhile, BDO Life Assurance Co. Inc. (BDO Life) sees growth in its bancassurance business amid the market’s growing appreciation for the value of life insurance among Filipinos.

Renato Vergel de Dios, BDO Life president and CEO, said the pandemic’s threat to mortality prompted households to seek more reliable financial protection solutions.

Insurance buyers have also expressed a preference for protection products that provide guaranteed features amid volatile capital markets in 2023, he said.

“As fund values of variable life insurance rise and fall with economic tide, traditional life insurance has proven to be a safe haven over time. Slowly but surely, Filipinos are realizing the importance of having a safety net, a plan B in the form of life insurance protection that serves as a solid foundation on which their financial planning model rests,” he said.

Bancassurance refers to selling life insurance products through BDO’s branches and other retail channels. The bank said that this sales model benefits customers by giving them a one-stop shop that caters to their banking and insurance needs.

“We have always prided ourselves as a bank that finds ways for our clients. Offering life insurance products at our branches completes our range of products as a financial institution,” BDO president and CEO Nestor Tan said.

“Just as the bank safeguards one’s current savings, life insurance serves to protect one’s future savings intended to be funded by future income,” Tan added.