‘No more rate cuts this year’

MANILA, Phillipines — Economists said the Bangko Sentral ng Pilipinas (BSP) may step on the brake pedal and keep interest rates unchanged today, as the easing cycle is expected to resume next year.

ING Bank Manila senior economist Nicholas Mapa said the BSP is expected to hold fire after unloading a salvo of rate cuts and hefty round of infusions of liquidity through the lowering of the reserve requirement ratio.

Mapa said BSP Governor Benjamin Diokno is expected to gauge the impact of recent policy moves involving a string of rate cuts and flurry of RRR reductions before he acts again.

“The self-professed pro-growth governor moved swiftly to unwind BSP’s previous rate hike cycle, cutting policy rates by a cumulative 75 basis points year-to-date but recently indicated that the current monetary stance is appropriate,” Mapa said.

Likewise, the BSP has slashed the level of deposits big and mid-sized banks are required to keep with the central bank by 400 basis points and for small banks by 200 basis points this year to free up much needed liquidity into the financial system.

The economy grew by 6.2 percent in the third quarter compared to a four-year low of 5.5 percent in the second quarter.

No more...

Economic growth averaged at 5.8 percent in the first nine months, lower than the government’s six to seven percent growth target, due to soft global markets amid the US-China trade war, the tightening cycle by the BSP last year, and the delayed implementation of the 2019 national budget.

“We expect the BSP to continue to monitor the impact of their string of RR reductions given that successive rounds of liquidity infusion have had only a marginal impact on bank lending thus far as freed up funds have simply driven the local bond rally further,” Mapa said.

The Dutch financial giant said the BSP is expected to continue to partially unwind the previous rate hike to bolster growth momentum given the benign inflation environment and his pro-growth leaning.

“We are currently penciling in up to 50 basis points worth of rate cuts in 2020, with the first move possibly as early as first quarter should full year 2019 GDP come in right at the lower-end of the government target of six percent,” Mapa said.

Mapa said the BSP may also cut the RRR by another 200 basis points next year as it intends to bring down the level to single digit by 2023.

For his part, HSBC economist Noelan Arbis said the easing cycle is set to resume in the first quarter of 2020 with a 25 basis points rate cut amid normalizing interest rates.

“We expect the BSP to continue its easing cycle in the first quarter of 2020 on the basis of normalizing interest rates. The real policy rate in the Philippines is one of the highest in Asia at the current juncture, which could impinge on growth in the coming quarters,” Arbis said.

Arbis said the policy rate cut last Sept. 26 was likely the last for the year.

Arbis said inflation is likely to edge higher in the months ahead after easing to a 43-month low of 0.8 percent in October from 0.9 percent in September.