No BSP rate cuts for now — HSBC

MANILA, Philippines — British banking giant HSBC said the Bangko Sentral ng Pilipinas would likely be on an extended pause by keeping interest rates unchanged anew, while Dutch financial institution ING Bank said the BSP is likely to resume its easing cycle during its first rate setting meeting for the year tomorrow.

Noelan Arbis, economist at HSBC, said the BSP’s Monetary Board would likely keep interest rates steady as it remains committed to an easing bias this year.

“BSP officials remain committed to reducing the policy rate by another 50 basis points this year. We expect the first 25 basis points cut to happen in the first quarter, but believe it would be more prudent to wait until the March meeting,” Arbis said.

Arbis pointed out there is no harm in waiting.

“We expect the BSP to stay on hold on Feb. 6 and to cut on March 19. We expect another 25 basis points cut in the second quarter,” Arbis said.

The benign inflation environment and slower-than-expected gross domestic product (GDP) growth allowed the BSP to pursue an easing cycle by slashing interest rates by 75 basis points last year, partially unwinding a tightening cycle that saw rates jump by 175 basis points in 2018.

For this year, BSP Governor Benjamin Diokno has already signaled a 50 basis points rate cut.

“The BSP’s decision to hold rates steady in its two previous meetings also signals that a rate cut is just around the corner – and we agree. But we believe the most prudent action would be if the BSP were to wait another meeting before embarking on additional easing,” Arbis said.

Arbis said inflation is back on an uptrend due primarily to a sharp rise in food and transport costs, while further upside risks loom following the Taal Volcano eruption in January.

Arbis added there is no need for the immediate easing as the GDP growth accelerated to 6.4 percent in the fourth quarter of last year from the revised six percent in the third quarter.

Arbis said monetary support remains ample as the BSP continues to lower the bank reserve requirement ratio as part of its commitment to reduce it to single digit level by 2023 from a high of 20 percent in 2017.

On the other hand, ING Bank Manila senior economist Nicholas Mapa believes the Monetary Board would slash interest rates by 25 basis points tomorrow to boost the economy.

“Given the bleak outlook for global growth and dissipating threats to the inflation outlook, BSP will likely keep its foot on the easing pedal to help bolster sagging growth momentum. We expect the benign inflation dynamics to afford BSP scope to cut its policy rate at the Feb. 6 meeting,” Mapa said.