MANILA – Another cut in Bangko Sentral ng Pilipinas’ (BSP) key rates is expected after the contraction in domestic growth in the first quarter of 2020 but timing depends on factors like inflation and impact of coronavirus disease 2019 (Covid-19).
In a reply to e-mailed questions from the Philippine News Agency (PNA), Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo Asuncion said “cutting rates further will have to hinge on more inflation data.”
“If inflation remains low and expectations are not against BSP's view, then, we may see another rate cut of at least 25 bps,” he said.
Since the start of the year, BSP’s policy-making Monetary Board (MB) slashed the central bank’s key policy rates by a total of 125 basis points to help buoy the domestic economy from the impact of trade tensions overseas and the global pandemic.
The Board also authorized BSP Governor Benjamin Diokno to cut banks’ reserve requirement ratio (RRR) by 400 basis points and so far, half of this has been implemented.
Asuncion discounts the need for additional RRR reduction to date since “liquidity in the market at this point is still high.”
“Like BSP said, they will wait to see how previous monetary policy moves affect the market,” he added.
In terms of gross domestic product (GDP), which contracted by 0.2 percent in the first quarter this year due to the impact of the Taal Volcano eruption and the pandemic, Asuncion said “it would be hard to project a fast recovery” for the economy sans the lack of effective drug against Covid-19.
He said “full recovery is hard to imagine, but an improvement of sentiment may continue to happen as treatment or an anti-viral drug comes along.”
“With Q1 (first quarter) GDP growth at negative, it is hard to imagine a Q2 (second quarter) growth that will not also be negative. I see Q2 as a caving in of GDP to an unprecedented level,” he added.
ING Bank Manila Senior Economist Nicholas Mapa said a deep contraction in the second quarter of the year is expected thus, he revised his full-year growth forecast from -2.2 percent to -2.9 percent.
He also said a 25-basis-point reduction in the BSP’s key policy rates is in the offing “as early as Thursday and a possible upsizing of the government’s social amelioration package and income replacement programs coupled with an aggressive spending plan on construction once the lockdown is lifted.”
Rizal Commercial Banking Corporation (RCBC) Senior Economist Michael Ricafort forecasts negative output for the domestic economy until the third quarter of this year and sees a recovery in the last quarter “at low single-digit levels on the premise that the Covid-19 could have already been better controlled/contained by then that would result to further gradual resumption of business/economic activities.”
Another factor for his optimistic growth projection in the last quarter this year is the impact of the stimulus measures being implemented by the government that would have been felt by the economy by that time.
“The Christmas season could also fundamentally support increased business/economic activities in 4Q (fourth quarter) 2020,” he added. (PNA)
