Up to 100 bps rate cut seen this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may reverse its tightening episode by slashing interest rates by 100 basis points this year due to easing inflation, according to Standard Chartered Bank.

Chidu Narayanan, economist at Standard Chartered Bank, said the series of rate cuts may start this Thursday as the April inflation is expected to fall below the midpoint of the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Narayanan said the April inflation may ease to 2.9 percent from a 15-month high of 3.3 percent in March.

The economist said tighter monetary conditions, falling inflation, and softening growth are likely to prompt the central bank to cut its key interest rate by at least 100 basis points.

 “I expect a 25 basis point rate cut from the BSP on May 9. We see a 100 basis point rate cut this year,” he said.

Narayanan said inflation would likely fall below two percent starting the third quarter of the year.

The bank expects inflation to decline to 2.7 percent this year from 5.2 percent last year, falling sharply in the third quarter due to a high base and one-off boosts from tax reforms and the end of poor weather.

 “We expect inflation to fall close to three percent in the second quarter and below two percent in the third quarter, likely tightening the already-tight monetary conditions further,” the economist said.

Standard Chartered Bank expects BSP to start its rate cut cycle with a moderate 25 basis point rate cut, driven by declining inflation and softening growth.

Narayanan said the BSP is likely to resume slashing the reserve requirement ratio or level of deposits banks are required to keep with the central bank this year.

 “We see 200 basis points of RRR cuts in addition to 100 basis points of policy rate cuts this year,” he said.