Philippines improves transmission of policy action, says HSBC

MANILA, Philippines — British banking giant HSBC said reforms undertaken by authorities in the Philippines have improved the transmission of monetary action of the Bangko Sentral ng Pilipinas (BSP).

Joseph Incalcaterra, chief economist for ASEAN, said monetary transmission varies widely in the region as the BSP is seen slashing interest rates as well as the level of deposits banks are required to keep with the central bank.

“In the Philippines, recent reforms have encouragingly resulted in a sharp improvement in transmission, which partly explains weaker growth,” he said.

The lag in the pass through of rate changes in the Philippines usually extended to more than one year but has now been reduced.

The economy grew by a slower 6.2 percent in 2018 from 6.7 percent in 2017, falling below the revised 6.5 to 6.9 percent target set by economic managers.

The BSP lifted rates by 175 basis points in five straight rate-setting meetings from May to November to prevent inflation from spiralling out of control.

Inflation kicked up to 5.2 percent last year from 2.9 percent in 2017 and exceeded the BSP’s two to four percent target range due to elevated oil and food prices as well as weak peso.

However, monetary authorities took a breather from the tightening cycle and kept interest rates unchanged since November as inflation eased to a 15-month low of 3.3 percent in March after peaking at 6.7 percent in September and October.

Incalcaterra said HSBC expects two rate cuts from the BSP starting the second quarter.

“We foresee two rate cuts this year (in second quarter and fourth quarter), but the BSP will have to be mindful of renewed food inflation risks due to El Niño, even if inflation has returned to target,” he said.