BSP seen to resume easing by February ‘20

MANILA -- The Bangko Sentral ng Pilipinas (BSP) is expected to start slashing key policy rates by February 2020 after keeping rates steady since the last cut last September.

In a report Thursday, ING Bank Manila senior economist Nicholas Mapa said the policy-making Monetary Board’s (MB) decision to keep key rates steady during its last rate setting meet for the year is expected due to the weak domestic output in the first half of the year because of budget approval delay.

In the first three quarters of the year, growth, as measured by gross domestic product (GDP), averaged at 5.8 percent, below the tightened target band of 6 to 6.5 percent, which was previously at 6 to 7 percent.

In the first quarter this year, growth slowed to 5.6 percent from quarterago’s 6.3 percent. It further slowed to 5.5 percent in the second quarter but improved to 6.2 percent in the third quarter as a result of the infrastructure catch-up program implemented by the government.

Mapa said the BSP’s decision to keep rates steady anew, after the total of 75 basis points cut this year, is seen as a move to “save possible ammunition ahead of a projected global slowdown in 2020.”

He projects GDP to “cling to the lower-end” of this year’s target band, citing the need for boost both from fiscal and monetary sides.

“Given this outlook, we expect the BSP to cut its policy rate by 25 bps as early as the February 2020

meeting and ease by a total of 50 bps next year,” he said.

ANZ Research also forecasts a total of 50 basis points cut in the BSP rates next year.

“However, the latest statement (of the BSP) provided no indication on the timing of resumption in easing,” it added.

In a briefing Thursday, BSP Governor Benjamin Diokno said they continue to see within-target inflation rate next year since growth is projected to remain robust.

“Going forward, the BSP will continue to monitor developments (that) affected the inflation outlook and demand conditions to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” he added.