With the US Federal Reserve almost sure to reduce policy rates in its meeting next week, the Bangko Sentral ng Pilipinas (BSP) making its own rate cut becomes a higher possibility.

The Federal Open Market Committee (FOMC) of the US Fed will meet from September 17 to 18 to decide whether to hold or decrease its key policy rate, which currently stands at 5.25% to 5.5%.

To recall, the BSP announced a rate reduction of 25 basis points (bps) after its Monetary Board meeting on August 15, citing an improving inflation environment. And the BSP made the right move as the August inflation rate came in at 3.3%, lower than the 4.4% of July.

The current policy rate of the BSP is at 6.25%.

BSP Governor Eli Remolona also said on August 15 that it is also monitoring the next moves of the US Fed.

“We expect the Fed to cut by September, possibly by 50 basis points in September and then 100 basis points until the end of 2024. And then maybe another 125 basis points in 2025. For us, that’s data, that’s one of the data points we look at. But it doesn’t drive our monetary policy. It’s just one of the numbers that we consider in our decisions about monetary policy,” he said.

The next meeting of the BSP Monetary Board is on October 17 and December 19, and analysts are expecting another policy rate reduction in either or both meetings.

For his part, Rizal Commercial Banking Corporation chief economist Michael Ricafort said the BSP will most likely match the rate cuts of the US Fed until 2026, which could boost the local economy.

“For the coming months, possible series of rate cuts by the US Fed that could be matched locally by the BSP from 2024 to 2026, could help lower borrowing costs by many businesses and other institutions, thereby could also help boost economic growth and other business activities, thereby could lead to some improvement in borrowers’ ability to pay that helps ease NPL (non-performing loan) ratio and overall asset quality of banks,” he added. NPLs are considered “bad debts.”

And while the BSP usually announces its policy rate decisions after the official scheduled meetings of its Monetary Board, it is also open to making an off-cycle rate cut or decided in an unscheduled meeting.

During earlier interviews prior to the August 15 rate cut, Remolona said the BSP is also “always open” to the possibility of an off-cycle easing.

As for the US Fed, a latest report from Reuters said that “majority of economists” in a poll conducted from September 6 to 10 expect s 25 bps cut in key policy rates when the FOMC of the US central bank meets next week.

Also, the poll showed that the US Fed is expected to make two more rate cuts for the remainder of the year as its FOMC still has two more meetings after next week’s.

Last month, it was reported that the “vast majority” of the US Fed’s policymakers now see the necessity of reducing policy rates as US inflation is easing. US inflation settled at 2.9% in July.

“The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” part of the minutes of a recent FOMC meeting stated.

US Federal Reserve Chairman Jerome Powell (Yonhap photo)