BPI sees 6.5%-7% GDP growth for 2019

Bank of the Philippine Islands (BPI) is projecting a 6.5 percent to 7 percent growth for the local economy in 2019 if the Bangko Sentral ng Pilipinas eases reserve requirements for banks by two percentage points.

In a briefing, BPI Lead Economist Emilio Neri Jr. said BPI does not expect the BSP to raise rates further this month, after its latest rate hike in November, given the projected slowdown of inflation.

Inflation is seen to average around 5.2 to 5.3 percent this year and ease to an average of 3.6 percent next year.

BPI said it expects inflation to drop below 4 percent by the middle of next year. By June, the BSP is expected to start reducing reserve requirements for banks.

"Based on our most recent estimates - which reasonably assumes that average global oil prices will rise modestly in 2019 compared to this year's unusual surge of more than 40 percent - headline PHL inflation should start to fall below 4 percent by mid-2019," BPI said.

It noted that, "sub-4.0 percent inflation prints, however, should be enough to give the BSP space to continue reducing the reserve requirement ratio (RRR) on deposits of commercial and universal banks which at 18 percent is the highest in the ASEAN-5.”

“We, therefore, believe that the next policy move of the BSP after its November 25, 2018, meeting will be to resume cutting the RRR starting in June 2019," BPI added.

BPI said the BSP could speed up the pace of RRR reduction if the government approves the increase in the central bank’s capitalization, since it would help the BSP in mopping up excess liquidity through its market-based policy tools.

The bank said though that, "while the return of inflation prints below BSP's annual target of 4.0 percent will afford the BSP some policy space, we think a policy rate reduction will be premature unless PHL inflation prints fall faster and begin to breach 2.0 percent, which is the lower-end of the BSP's inflation target range."