English
Philippines: Another 50 bps rate cut seen until Q1
MANILA, Philippines — DBS Bank Ltd. of Singapore expects the Bangko Sentral ng Pilipinas (BSP) to slash interest rates by another 50 basis points until the first quarter of next year as it lowered the country’s gross domestic product (GDP) growth forecast for this year.
Masyita Crystallin, economist for the Philippines and Indonesia at DBS, said the bank has lowered its GDP growth forecast to 5.7 percent as economic expansion is seen unlikely to rise above six percent in the second half.
“There is more room for rate cuts in the current context, in our view. We see another 50 bps cuts in the coming quarters,” she said.
The BSP’s Monetary Board has partially unwound its aggressive tightening via a 175 bps rate hike after delivering its third rate cut last Sept. 26 bringing the total reduction to 75 bps so far this year.
The BSP also slashed its inflation forecast to 2.5 percent instead of 2.6 percent for 2019 and retained the projections for 2020 and 2021 at 2.9 percent.
“Inflation is likely to remain at bay further this year, supporting private consumption. Soft domestic demand and high base effect from last year are likely to keep inflation around two percent until year-end 2019,” she said.
Inflation averaged three percent in the first eight months of the year, after easing to a 35-month low of 1.7 percent in August from 2.4 percent in July. It is expected to further ease to a range of 0.6 percent to 1.4 percent for the month of September.
However, Crystallin said risks to easing inflation include the planned increase of the anti-dumping duties on rice planned for October, the volatility in the oil price due to geopolitical strain in the Middle East, and the impact of the African swine fever (ASF).
The country’s GDP growth eased to 5.5 percent in the first half of the year from 6.3 percent in the same period last year after slowing to a four-year low of 5.5 percent in the second quarter from 5.6 percent in the first quarter due to soft global markets amid the US-China trade war as well as the impact of the delayed passage of the 2019 national budget.
“Budget impasse earlier this year was the main cause of the growth slowdown alongside with higher global headwinds. In addition to the backloading of expenditure due to budget impasse, overall government infrastructure spending this year was cut by P95.3 billion. This will negatively impact growth given that government infrastructure was the main driver of growth in the last three years,” the DBS economist said.
She added GDP growth would rebound in the second half due to the catch-up in government spending particularly on infrastructure, the trade balance seems to have bottomed, and monetary easing has started to show some positive impact on liquidity.
The BSP has also slashed the reserve requirement ratio for big and mid-sized banks by 300 bps as well as for small banks by 200 bps, releasing more than P500 billion in additional liquidity into the financial system to boost economic activity.
Source: https://www.philstar.com/business/2019/10/04/1957202/another-50-bps-rate-cut-seen-until-q1#Wa1IBblClKs6yUI1.99