As inflation eases, BSP may cut policy rates by 100 bps
THE Bangko Sentral ng Pilipinas (BSP) could cut its monetary-policy rates by as much as 100 basis points this year, according to an international bank economist, as inflation is expected to soften further into 2019.
In a recent research assessment, Standard Chartered Economist for Asia Chidu Narayanan said they are revising their earlier expectation of a rate hold for the entire 2019, to a total of 100 basis points spread over the May, June and August meetings.
“We expect inflation to fall further to below 2 percent in the third quarter due to a high base and the fading of one-off boosts from tax reforms and poor weather. Lower inflation is likely to further tighten already-tight monetary conditions. We now expect BSP to respond with policy rate cuts starting in May 2019, partially reversing last year’s hikes,” Narayanan said.
The Philippine Statistics Authority (PSA) announced recently that the monthly inflation print went back to withintarget in February to 3.8 percent after about 12 months of shooting off target.
Inflation came from a peak of 6.7 percent in September and October 2018, as the higher rice prices, increases in global oil rates and new taxes brought upward pressure in inflation. After several monetary-policy actions, from the BSP, as well as nonmonetary policies from the national government, inflation started to go down in November to 6 percent, to 5.1 percent in December and down to 4.4 percent in January 2019.
As such, Narayanan said they are also revising their inflation forecast for the Philippines, to take into consideration the faster-than-expected slowdown in the growth of consumer prices in the country.
“We also revise our inflation forecasts lower to reflect recent softer data. We now expect CPI inflation to average 2.7 percent in 2019, down from our previous forecast of 3.5 percent. Upside risks to our forecast arise from higher crude oil prices and potential weather disruptions in the third quarter,” the Standard Chartered economist said.
“We maintain our call of 200 basis points of reserve requirement cuts in 2019,” the economist added.
For the rate cuts, Narayanan said they see a 25-basis-point cut in May, as the BSP will likely be comforted by inflation prints showing further easing in March and April. This will be followed by a 50-basis-point cut in June and a 25-basis-point cut in
August as inflation continues to decline, the economist said.
The Central Bank Monetary Board is expected to meet on March 21 to set the monetary-policy settings anew. This will be the first monetary-policy meeting of the new BSP Governor Benjamin E. Diokno. His predecessor, Governor Nestor A. Espenilla Jr., died after a yearlong battle with tongue cancer.
In his first press conference, Diokno talked about the downward trend of the inflation path and its possible implication in the monetarypolicy meeting.
“I think given the deceleration in inflation, there is an opportunity for monetary easing, but as we said that will be dependent on the data that will be given to us by our technical staff here—which is world class by the way. So we will look at those data and make a decision based on the information given to us,” Diokno said.