Key rates to be slashed
MANILA -- The Bangko Sentral ng Pilipinas (BSP) is projected to resume its easing cycle with a cut of 25 basis points on Thursday, as inflation remains within-target and global growth prospects are still bleak.
Inflation posted an uptick to 2.9 percent last January, higher than market consensus of 2.7 percent, from month-ago’s 2.5 percent, driven by the higher rate of price increases of the food, oil and tobacco, and alcoholic beverages indices.
Despite the higher figure, the inflation rate is still within the government’s 2-4 percent target band.
In a report, ING Bank Manila senior economist Nicholas Mapa forecasts BSP’s policy-making Monetary Board (MB) to reduce the central bank’s key policy rates by 25 basis points on Thursday, citing the January inflation rate is already the BSP’s average inflation forecast for this year.
Mapa said global growth prospect is still weak partly on expected
lower oil demand from China thus, he projects few factors that will push inflation up.
“With inflation still expected to remain within target and as global growth is likely to be hampered by the spillover effects from the recent 2019-nCoV (novel coronavirus) episode, we expect the central bank to resume unwinding its previous policy tightening to bolster growth momentum and chase the 6.5-7.5 percent growth target,” he added.
To date, the rate of the central bank’s overnight reverse repurchase (RRP) facility is 4 percent, the overnight lending rate is 4.5 percent, and the overnight deposit rate is 3.5 percent.
BPI lead economist Jun Neri forecasts another cut in the BSP rates this week after the total of 75 basis points reduction last year since inflation remains below 3 percent.
He, however, is not optimistic for further cuts in banks’ reserve requirement ratio (RRR), which was reduced by as much as 400 basis points last year.
He considers RRR cuts “more challenging” this year due to expectations of an increase in domestic rice prices as it normalizes after a drop last year due to the Rice Tariffication Law.
Another upside risk to inflation this year is the increase in the excise taxes of oil and sin products, he added.
Neri, however, does not see the reduction of the key rates to 3 percent due to “depreciation pressures from portfolio outflows, lower tourism receipts, and a potential slowdown in remittances.”
“As we have said before, the risk of significant portfolio outflow is high when inflation is above the policy rate,” he added.
Meanwhile, ANZ Research forecasts a 25-basispoint reduction in the BSP rate in March but noted that “the odds for a cut at tomorrow’s meeting have also increased.” (PNA)