Moody’s sees BSP further calibrating policy amid lower growth

MANILA, Philippines — Moody’s Investors Service expects central banks in the region, including the Philippines, to continue calibrating monetary policies against the backdrop of slower economic growth in Asia Pacific.

In its latest regional growth update, Moody’s senior vice president Christian de Guzman said the gross domestic product (GDP) growth forecast for the region has been slashed to 4.4 instead of 4.5 percent this year, and to 4.2 instead of 4.4 percent for next year.

For the Philippines alone, de Guzman said the GDP forecast was cut to 5.8 instead of six percent for 2019, and to 6.2 instead of 6.3 percent for 2020.

He said government spending has been much weaker in the Philippines due to the delayed passage of the 2019 national budget and as fiscal impulse remains subdued in the region.

“The delay in the passing of the government budget in the Philippines has disrupted its infrastructure building plans,” he said.

The Duterte administration has committed to spend about P9 trillion for critical projects until 2022 under its massive infrastructure spending dubbed as the Build Build Build program.

The delayed passage of the budget pulled down the GDP growth to a four-year low of 5.5 percent in the second quarter from 5.6 percent in the first quarter.

The 5.5 percent average GDP expansion in the first half was below the six to seven percent target set by economic managers via the Development Budget Coordination Committee (DBCC).

De Guzman said monetary policy easing has commenced in most countries.

“Monetary policies will be calibrated against the backdrop of concerns on domestic private sector indebtedness. Stable outlook for oil prices contribute to benign inflation, which has supported rate cuts,” he added.

In the Philippines, the Bangko Sentral ng Pilipinas (BSP) has so far slashed interest rates by 50 basis points this year due to the continued downtrend in inflation as well as the slower than expected GDP growth.

The BSP slashed interest rates by 25 basis points last May 9 and by another 25 basis points last Aug. 8.

It also lowered the reserve requirement ratio for big and mid-sized banks by 200 basis points and for small banks by 100 basis points, releasing about P200 billion in additional funds to boost the economy.

“BSP has started to unwind the tightening precipitated by a spike in food inflation in 2018, while employing reserve requirements to more actively manage systemic liquidity,” De Guzman said.

The central bank lifted interest rates by 175 basis points between May and November last year as inflation kicked up to 5.2 percent last year from 2.9 percent in 2017 due to elevated oil and food prices as well as weak peso.

Inflation has since recovered to average 3.3 percent in the first seven months, within the BSP’s two to four percent target, after easing to a 31-month low of 2.4 percent in July from 2.7 percent in June.