Economists see BSP rate cut as early as February

MANILA, Philippines — Monetary authorities may resume the easing cycle by slashing interest rates as early as next month as the country’s gross domestic product (GDP) growth slumped to an eight-year low of 5.9 percent last year from 6.2 percent in 2018 primarily due to the delayed passage of the 2019 national budget, according to economists.

ING Bank Manila senior economist Nicholas Mapa said the Bangko Sentral ng Pilipinas (BSP) may cut its benchmark rates during the first rate setting meeting of the Monetary Board on Feb. 6.

“We continue to price in a rate cut by the BSP in February, followed up by further easing in May to help rekindle the now scuttled new Philippine growth story,” Mapa said.         

The Philippines has recorded 84 straight quarters of uninterrupted GDP growth and has been growing by an average of six percent since 2012. However, the Philippines recorded last year its sub six percent GDP growth for the first time since 2011.

“The new Philippine growth story ended in 2019 with growth snapping its streak of growth above six percent with full year 2019 growth stalling at 5.9 percent.  The most telling development during that run of strong growth was the return of capital formation as growth was driven by more than just tried and tested household consumption,” Mapa said.

Last year, the Monetary Board slashed interest rates by 75 basis points on the back of the benign inflation environment and sluggish economic growth, partially unwinding a tightening cycle that saw rates jump by 175 basis points in 2018.

Mapa said the rate hike salvo in 2018 did its job of anchoring inflation expectations, but may have had unintended consequence of sapping fading investment momentum.

“With government spending held back by the budget delay and private investment halted by the lagged effects of previous rate hikes, BSP attempted to quickly dial back the previous action by cutting 75 basis points in 2019.  The reversal helped salvage capital formation in 4Q, but the time delay for monetary action will take some time to full feed into the economy,” Mapa said.

With growth momentum apparently still sluggish, the need for additional stimulus from both the fiscal and monetary authorities is now even more apparent.

Robert Dan Roces, chief economist at Security Bank, said the odds are higher that the BSP would slash interest rates next month.

 “Chances are 50-50 for February, but with a slight tilt towards higher odds,” Roces said.