Room for rate cuts on a softer Philippines inflation outlook

September inflation is likely to remain unchanged from August's. That means core inflation is likely to have stayed below 2% in the month. In fact, core inflation is likely to remain below 2% for the rest of year, which means that both headline and core inflation are set to miss the official target for this year. 

Statements from Bangko Sentral ng Pilipinas (BSP) have been fairly consistent this year. Despite the softer inflation outlook, a rate cut doesn't look imminent for now. Not as long as GDP growth momentum remains fairly strong, which is currently the case. The fact that some inflationary risks on food prices persist means that BSP is also likely to keep its tight policy stance. 

Interestingly though, several other central banks in the region have eased their respective policy stance. With the US Fed also unlikely to be aggressive in tightening its monetary policy, there would be pressure on the BSP to lower its interest rates ahead. This is especially true if the central bank would want to facilitate a softer peso ahead. 

"We no longer expect any rate hike from the BSP in the next year. Risks are now tilted towards a cut", says  DBS Group Research.