The Philippine equity markets are factoring in a potential 25-basis-point (bps) rate cut by the Bangko Sentral ng Pilipinas (BSP) at its upcoming policy meeting this Thursday, according to Manulife Investment Management Philippines.
Mark Canizares, head of equities at Manulife, noted that although the country’s fourth-quarter GDP held steady at 5.2 percent, a rate cut could provide much-needed support to consumption spending and investment—two sectors showing signs of weakness in the latest economic data.
“The reduction in rates could help stimulate demand, addressing some of the underlying slowdowns seen in the GDP figures,” Canizares explained.
However, with inflation gradually rising since November, yet still within the BSP’s target range of 2 to 4 percent, Canizares said that investors would be closely monitoring inflation trends. The central bank may opt to pause its easing cycle soon, which could help stabilize the peso and anchor inflation expectations.
The local currency, the peso’s depreciation poses a significant near-term challenge, particularly for the equity market, as currency fluctuations have historically impacted foreign investor returns. A weaker peso can raise investment hurdle rates, leading foreign investors to reconsider their positions in the market, despite its historically low price-to-earnings ratio.
Manulife also highlighted that a weaker peso could increase the costs of imports and borrowing, putting further pressure on corporate earnings. To mitigate currency risks, the firm advised investors to consider hedging strategies using currency derivatives or to explore U.S. dollar-denominated assets for diversification.
This shift in policy expectations underscores the BSP’s balancing act of supporting growth while managing inflationary pressures, and its actions in the coming days could have broader implications for both local and global investors.
