MANILA -- Economists of ING Bank Manila and ANZ Research expect another 25-basis points reduction in the Bangko Sentral ng Pilipinas’ (BSP) policy rates as early as this September after domestic inflation rate fell below 2 percent last August.
The Philippine Statistics Authority (PSA) on Thursday reported further deceleration of domestic inflation rate last August to 1.7 percent from the previous month’s 2.4 percent given the slower contribution of the heavily-weighted food index.
In a report, ING Bank Manila senior economist Nicholas Mapa said the slower inflation rate trend “remains intact with BSP indicating full-year inflation could settle at 2.7 percent and remain within target until 2021.”
He said BSP Governor Benjamin Diokno has indicated another 25-basis point cut in the central bank’s rates before the end of the year, and he projects this to happen during the rate setting meeting of the Monetary Board on September 26.
“Monetary easing would also make sense given that 2Q GDP (gross domestic product) growth has slid to 5.5 percent, well below the government's 6 to 7-percent fighting target for the year,” he said.
Last August’s inflation rate is the slowest after October 2016’s 1.8 percent. It is already below the government’s 2 to 4-percent target range until 2021.
The continued decline of inflation rate is a turn-around from the elevated inflation rate last year that peaked at 6.7 percent in September and October due to supply-side factors, particularly lack of supply of rice, a staple Filipino food.
This gave Philippine monetary officials leeway to slash the central bank’s key policy rates by a total of 50 basis points to date this year.
Mapa also forecasts the BSP to cut banks’ reserve requirement ratio (RRR) by 100 basis points in the last quarter of the year after a total of 200 basis points slash from May to July this year.
“Diokno has telegraphed his moves effectively and he indicates that the next RRR redux will be announced per quarter and we expect him to reduce RRR in two tranches of 50 bps, possibly at the end of October and end of November,” he said.
Also, ANZ Research forecasts another BSP rate cut due to sustained easing of inflation rate.
It, however, forecasts the rate reduction to happen in the last quarter of the year.
“With inflation benign and two straight downside surprises to GDP growth, we also expect the Bangko Sentral ng Pilipinas (BSP) to cut its policy rate by a further 25 bps in Q4 this year,” it said.
The MB slashed the BSP’s key policy rates by 25 basis points each last May and August due to sustained drop of inflation rate and firm domestic growth outlook despite the weak outturn in the first half of the year.
Growth, as measured by GDP, averaged at 5.5 percent in the first six months of the year, below the government’s 6 to 7-percent target band on account of the delay in the approval of this year’s national budget, which prevented the government to implement its programs.
Economic managers, however, are confident that growth will recover in the second half of the year as the government implements a catch-up, particularly on the infrastructure program. (PNA)
