Benjamin Diokno
In a commentary, ING Bank said the BSP and Bank Indonesia are expected to do a “dovish pause” at their respective policy meetings on Thursday.
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BSP unlikely to cut rates this week but may leave door open for easing — ING
(Philstar.com) - June 19, 2019 - 5:10pm

MANILA, Philippines — The Bangko Sentral ng Pilipinas will likely keep its key rate unchanged this week but may signal an increased likelihood for easing in the near term, a global bank said.

In a commentary, ING Bank said the BSP and the Bank Indonesia are expected to do a “dovish pause” at their respective policy meetings on Thursday.

"Doves" prefer low interest rates because they believe that will spur consumer borrowing and spending, which contributes to economic growth.

"Governors of both the central banks have pointed to easing monetary policy. BI Governor Warjiyo has indicated that 'there's room to lower interest rates', while BSP's Diokno has openly pledged to slash policy rates further, noting that this would be inevitable,” ING Bank said.

“Despite their dovish comments, both Diokno and Warjiyo have stuck to script by invoking data dependency in the timing of their much-anticipated monetary actions. Their respective economies currently have inflation running within policy targets, while their currencies have been relatively stable in 2019,” it added.

Inflation quickened to 3.2% in May, bucking a six-month downtrend mainly due to an uptick in food prices. Year-to-date, inflation averaged 3.6%, still within the BSP’s 2%-4% annual target.

In a bid to power growth amid cooling inflation and tight liquidity conditions, the BSP in May cut its benchmark rate by 25 basis points to 4.5% from a decade-high of 4.75%, and announced a three-step reduction in bank reserves to 16% from 18%.

According to ING Bank, it expects the BSP and BI to seek validation from data releases before they actually move on easing amid external headwinds.

“Given this outlook, we can expect BI and BSP to tread cautiously on rate cuts but act decisively to ease monetary policy should the data indeed support a reduction in policy rates,” the global bank said.

“We believe they will keep their powder dry on Thursday but, at the same time, leave the door wide open for easing,” it added. — Ian Nicolas Cigaral

PHILIPPINE ECONOMY
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