ING sees cuts in key rates, re­serve re­quire­ments

Business World - - Banking & Finance - By Melissa Luz T. Lopez Se­nior Reporter

SLOWER GROWTH and tighter liq­uid­ity will prompt the cen­tral bank to stop its tight­en­ing cy­cle, a global bank said, ex­pect­ing cuts in in­ter­est rates as well as bank re­serves in 2019.

Ni­cholas An­to­nio T. Mapa, se­nior econ­o­mist at ING Bank NV-Manila, said he ex­pects the Bangko Sen­tral ng Pilip­inas (BSP) to re­duce key rates by 50 ba­sis points (bp) next year plus a 200bp cut in the re­serve re­quire­ment ra­tio (RRR).

Bro­ken down, Mr. Mapa sees a 25-bp rate cut within the sec­ond and fourth quar­ter. Mean­while, 100-bp cuts in bank re­serves are ex­pected in the first quar­ter and in the third quar­ter.

How­ever, the bank econ­o­mist said there are three con­di­tions that need to be met be­fore th­ese ad­just­ments are en­forced.

“Pos­si­bly by the sec­ond quar­ter, we can see them (BSP) cut the pol­icy rates and on top of it, re­serve re­quire­ment mainly on three premises: first, in­fla­tion has to slow back to within tar­get,” Mr. Mapa said in a me­dia round­table ses­sion yes­ter­day in Makati City.

“We’d also like to see the Fed[eral Re­serve] dot plots more do­vish than they are right now and lastly, growth is ex­pected to slow down so maybe this gives the BSP a lee­way to give the economy a much-needed break.”

The BSP has fired off five con­sec­u­tive rate hikes since May worth a to­tal of 175 bps, the lat­est of which a “proac­tive” move to tem­per in­fla­tion ex­pec­ta­tions go­ing into 2019. Now, rates range from 4.25-5.25%, with the 4.75% bench­mark the high­est in nine years.

The se­ries of in­creases are meant to rein in price pres­sures, which have been con­sis­tently climb­ing since Jan­uary un­til a sharp fall recorded last month.

In­fla­tion has so far av­er­aged 5.2% this year ver­sus the orig­i­nal 2-4% tar­get band, al­though eco­nomic man­agers said the rate will con­sis­tently de­cline go­ing into 2019.

Higher in­ter­est rates are viewed as a growth risk cou­pled with faster prices in­creases for ba­sic goods which dampen con­sumer spend­ing.

Al­ready, house­hold spend­ing has been de­cel­er­at­ing so far this year, with growth eas­ing to 5.2% in the third quar­ter from 5.9% logged in the April-June pe­riod.

Mr. Mapa said they ex­pect in­fla­tion to ease to 3-3.1% next year, which should “in­vig­o­rate” busi­ness spend­ing and re­store some pur­chas­ing power among re­tail shop­pers.

Th­ese are ex­pected to help stoke the economy, with over­all growth ex­pected to ease to 6.1% in 2019 com­ing from a 6.2% forecast this year. Gross do­mes­tic prod­uct (GDP) growth has av­er­aged 6.3% as of end-Septem­ber.

Growth is seen to slump to 5.9% this quar­ter, which if re­al­ized will slump from 6.1% logged in Ju­lySeptem­ber and will be the slow­est pace in over three years. This trend is ex­pected to be car­ried over through the first half of 2019, as a boost from elec­tion spend­ing could be can­celled out by a five­month ban on gov­ern­ment projects ahead of the May 2019 polls.

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