Twin Rate Cuts Propel PSEi Towards Key 6,000 Level
The local stock barometer, the PSEi, regained positive momentum on Thursday, driven by the simultaneous interest rate cuts enacted by both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP), with the benchmark index rising by 0.5 per cent, or 30.06 points, to settle at 5,990.00. This move by the central banks was interpreted by the market as a strong signal of support for both economic growth and increased system liquidity, prompting investors to take on riskier assets and pushing the PSEi closer to the psychologically important 6,000 level.
The broader market, however, presented a mixed picture, as the All Shares Index showed a slight decline of 0.27 per cent, or 9.27 points, ending the session at 3,453.43. The overall trading activity remained robust, with the net value turnover recorded at a respectable P6.64 billion, suggesting institutional participation and digestion of the major policy news.
According to Luis Limlingan, Head of Sales at Regina Capital Development Corp., the local bourse edged higher as the market quickly absorbed and responded to the recent monetary policy decisions from both the Fed and the BSP, with the twin cuts mitigating any major capital outflows and encouraging fresh positioning. The market’s reaction underscores the high sensitivity of the PSEi to global monetary trends, particularly those set by the US Fed, whose decisions on rate adjustments significantly influence emerging market currency and capital flow dynamics.
Financials Outperform Despite Sectoral Weakness
While the headline-grabbing rise in the PSEi was celebrated, a more detailed look at the sectoral performance reveals a bifurcated market where Financials emerged as the clear winner, contrasting sharply with notable declines in the property and mining sectors. The Financials Index led all key sectors with substantial gains, directly benefiting from the domestic rate cut by the BSP, which is expected to reduce lending costs and spur loan demand from both consumers and businesses, ultimately driving profitability for banks and other financial institutions.
Conversely, the Property Index experienced a 1.12 per cent decline, and the Mining and Oil sector fell by 0.65 per cent, indicating investor concerns about specific headwinds impacting these segments, such as sustained lower property demand or commodity price volatility despite the generally supportive monetary environment. This sectoral divergence occurred even as the number of declining stocks narrowly exceeded advancing issues, with 103 stocks falling against 100 that advanced, while 62 issues remained unchanged, suggesting that the index’s gain was driven by outperformance in a few heavily weighted financial stocks.
The BSP’s decision to approve a fresh quarter-point rate cut was largely anticipated by economists who viewed it as a necessary measure to stimulate sluggish growth in the third quarter, a slowdown partly attributed to the lingering impact of a public works corruption fiasco that had dampened public spending and investor sentiment. This dovish stance by the central bank aims to directly encourage consumers and businesses to access additional funds through lower interest rates, thereby boosting demand for goods and services across the economy and providing a much-needed stimulus to support overall growth targets for the Philippine economy and the PSEi.
Stimulus Fuels Domestic Demand And Liquidity
The simultaneous rate cuts by the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) serve as a coordinated global and local stimulus designed to inject greater liquidity into the financial system and boost domestic economic activity, a crucial step for the Philippines given its recent growth challenges. The local central bank’s rate reduction, which was widely expected, provides a direct policy tool to counteract the impact of slower third-quarter growth, a period marred by governance concerns and reduced public infrastructure spending linked to a corruption scandal.
By making borrowing cheaper, the BSP explicitly encourages both business expansion and consumer spending, which are essential drivers for accelerating the country’s economic momentum toward its long-term growth trajectory and improving the environment for the PSEi. The market’s reaction, as noted by analysts like Luis Limlingan, highlights that investors view this development as fundamentally positive for future corporate earnings and overall capital flow.
The performance of individual stocks reflected this sentiment, with ACEN Corp. gaining significantly, climbing 11.62 per cent to P2.69, signaling strong investor confidence in sectors poised for growth in a low-interest-rate environment, likely utility or power-related firms. However, the simultaneous 3.91 per cent decline in SM Prime Holdings Inc. to P22.10 shows that not all major stocks benefited uniformly from the liquidity injection, underscoring ongoing caution and selective stock picking based on individual company fundamentals and sensitivity to economic uncertainty, even as the main PSEi index trends higher.
The overall objective of the twin rate cuts is clear: to ensure the Philippine economy has adequate monetary support to overcome domestic hurdles and sustain investor interest in the PSEi and broader local capital markets, setting the stage for a potential year-end rally fueled by cheaper credit and improved sentiment.
Monetary Policy Effectiveness And Governance Risk
While the BSP’s rate cut provided an immediate, expected upward impulse to the PSEi, the efficacy of this monetary policy easing is structurally constrained by the concurrent decline in public fiscal spending and persistent governance issues impacting capital outlays. The central bank’s action functions primarily as a potent signal to the market, preserving the interest rate differential relative to the US Fed to mitigate capital flight, and providing a direct cost-of-funds benefit to the Financials sector, as seen in Thursday’s performance.
However, the core economic slowdown in the third quarter, stemming from reduced government infrastructure spending due to corruption investigations, cannot be fully offset by cheaper credit alone. Monetary policy, while powerful in managing liquidity and inflation, cannot resolve the structural issue of delayed or frozen public works, which directly diminishes aggregate demand and business confidence in the implementation capacity of the government.
The split performance of the PSEi, with financials and certain growth stocks advancing while the property sector lagged, suggests the market is pricing in a ‘liquidity-driven’ rally rather than a broad ‘growth-driven’ recovery, reflecting skepticism that the rate cut will translate immediately into real economic expansion without a complementary surge in effective government spending. For the Philippine economy, the full translation of the BSP’s dovish stance into sustained GDP growth, necessary to push the PSEi decisively past the 6,000 resistance level, is contingent upon visible progress in restoring governance integrity and accelerating the implementation of the delayed infrastructure budget.
