BSP likely to keep policy rates steady

As inflation eases

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is expected to keep policy rates on hold in its meeting this Thursday as the slowdown in November inflation indicate a downtrend in the growth in consumer prices, London-based Capital Economics said over the weekend.

The think tank said slowing economic activity may prompt the central bank to hold off further rate hikes and may even begin cutting rates in the beginning of 2020.

“The drop in Philippine inflation in November should give the central bank (BSP) the space in needs to leave policy on hold at its meeting on Thursday (Dec.13),” Capital Economics said.

The headline inflation rate fell to six percent in November from a peak of 6.7 percent in October and is expected to continue falling back over the coming months as food and fuel price inflation ease further.

The firm expects headline inflation to fall back within the two to four percent target range of the BSP by the middle of next year.

“As such, we doubt the central bank will resume its tightening cycle in 2019,” said the firm.

The slowing growing economic growth over the past few quarters also cast a gloomy outlook for growth, Capital Economics said.

Economic growth slowed down to 6.1 percent in the third quarter of the year, in line with median market expectations, as elevated inflation eroded consumer spending.

With this performance, the domestic economy needs to expand by at least seven percent in the fourth quarter of the year to meet the lower end of the government’s growth target of 6.5 percent to 6.9 percent for the entire 2018.

Third quarter growth tracks the revised second quarter gross domestic product (GDP) growth of 6.2 percent and seven percent in the third quarter of 2017.

“In the face of a weakening external environment and higher interest rates, the chances of a sustained rebound are slim. For now, we have pencilled in rate cuts for the beginning of 2020, but they could well come sooner if the next couple of quarters of growth continue to disappoint,” Capital Economics said.