MANILA – An economist of HSBC forecast on Tuesday a 25-basis points cut in the Bangko Sentral ng Pilipinas’ (BSP) key rates and another 200-basis points reduction in banks’ reserve requirement before the year-end as part of central bank’s measures to help lift the economy.
In a virtual briefing, HSBC Private Banking chief market strategist Fan Cheuk Wan said these reductions are targeted to ease liquidity and help in the government’s economic recovery program.
To date, the BSP’s policy-making Monetary Board (MB) has reduced the central bank’s key policy rates by a total of 175-basis points, 150 basis points of which was made since last March or within the first week of the enhanced community quarantine (ECQ) in Luzon, which was later followed by local government units in the Visayas and Mindanao.
For Metro Manila alone, the ECQ was extended until the end of May 2020.
The ECQ was implemented to address the rise of coronavirus disease (Covid-19) cases by limiting people’s movement.
It, however, also affected economic activities in Luzon, for one, which accounts for about 70 percent of the country’s annual output.
Monetary officials have stepped up to help address the economic impact of the pandemic by cutting the BSP’s key policy rates as well as major banks’ reserve requirement ratio by 200-basis points, half of the 400-basis points that the MB authorized BSP Governor Benjamin Diokno to implement this year.
These two measures, which are among the measures that the BSP has implemented so far to help buoy the domestic economy this year, aim to increase domestic liquidity and encourage lending needed to ensure robust economic activities.
Wan expects the next policy rate cut to materialize in the third quarter of the year, citing the recent rate cuts “have been aggressive.”
“I feel the BSP would also want to monitor the impact of the rate cut that has been delivered since the beginning of the year,” she said.
HSBC Private Banking Global chief market strategist Willem Sels said policy rate cut is a “common thing” among central banks to date to address the economic impact of the pandemic.
He even forecasts the Federal Reserve to hold its rates steady until end 2020 at between zero to 0.25 percent.
“That gives the opportunity for a lot of the emerging market banks to also cut their rates to stimulate the economy,” he said, adding the rate cuts do not necessarily affect the currency and are given because inflation remains low.
“So the Philippines is not alone, certainly not. There’s a whole list of emerging market central banks that are, you know, keeping rates low or cutting them,” he added.
In terms of gross domestic product (GDP), Wan expects the Philippine economy to contract by 3.9 percent this year but will recover to 7 percent next year.
She said the gradual normalization of economic activities on account of the re-opening of the economy “will be a key driver on the health of rebound of consumption.”
HSBC’s earlier growth forecast for the domestic economy this year is an expansion of 6.4 percent. (PNA)
