Bangko Sentral’s first rate cut in 2020 likely to happen in March — HSBC
MANILA, Philippines — The Bangko Sentral ng Pilipinas will likely resume its monetary policy easing in the first quarter of 2020 and the “most prudent action” would be for the first rate cut to come in March, a global bank said.
Ahead of the monetary board's first meeting for the year on February 6, BSP Governor Benjamin Diokno said the BSP won’t be as aggressive as last year in slashing policy rates in 2020, citing benign inflation, low unemployment rate and an economy that he expects to grow 6.5%-7% this year.
In a commentary, HSBC Global Research economist Noelan Arbis said he expects the BSP to stay on hold on Thursday and trim rates on the Monetary Board’s next policy meeting on March 19.
Arbis said there is no need for immediate easing, with economic growth “on a clear upward trajectory,” “ample” monetary support and inflation seen to be “easily become more broad-based.”
“Overall, 50bp of rate cuts are still very much in store in the Philippines in our view - it's only a matter of timing,” Arbis said.
“We see no harm in waiting for now, but even if the BSP were to cut on 6 February, we would still expect the next 25bp cut to be in 2Q,” he added.
The Philippine economy grew 5.9% in 2019, missing the government's 6%-6.5% goal for the year after the delayed approval of the national budget disrupted state spending. The 2019 print was the slowest rate in eight years.
Meanwhile, inflation quickened in the last two months of 2019 and averaged 2.5%, settling within the government’s 2%-4% annual target.
Banks typically use the BSP's benchmark rate as basis when charging loans to consumers and businesses. Lower borrowing costs encourage bank lending activity which, in turn, fuels economic growth.
Since becoming governor, Diokno — who is widely seen by the market as a pro-growth central bank chief — has given the economy a shot in the arm with a cumulative 75-basis point rate cut in 2019 and a 400-basis point reduction in bank reserves.
The government will release the January 2020 inflation data on Wednesday, February 5.
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