S&P sees 100 bps rate cut until next year

MANILA, Philippines — S&P Global Ratings expects the Bangko Sentral ng Pilipinas (BSP) to slash interest rates by another 100 basis points until the end of next year, completely reversing the tightening cycle that saw benchmark rates rise by 175 basis points in 2018.

In its latest Global Banking Country-by-Country Outlook 2020 titled “The calm before the turn,” S&P primary credit analyst Nikita Anand said there is likelihood of further cuts to policy rates and the reserve requirement ratio (RRR).

Anand said the BSP is likely to slash interest rates by another 25 basis points next month bringing to 100 basis points the total reduction in benchmark rates this year.

“We expect another 25 basis points rate cut later this year. This should bring the overnight reverse repurchase rate to 3.75 percent. We anticipate a total rate cut of 75 basis points in 2020,” she said.

Easing inflation and slower-than-expected gross domestic product (GDP) growth have allowed the central bank to slash interest rates by 75 basis points this year, partially unwinding the 175 basis points hikes last year.

“This would reverse the interest rate hikes during 2018 when capital outflow and inflationary pressures led the central bank to raise policy rates by 175 basis points,” Anand said.

Inflation has averaged 2.6 percent in the first 10 months after easing to a 43-month low of 0.8 percent in October due to lower oil and food prices.