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Philippines: Economists see out of cycle rate cut
MANILA, Philippines — Economists are expecting the Bangko Sentral ng Pilipinas (BSP) to hold an emergency meeting to cut interest rates by 50 basis points to cushion the impact of the coronavirus disease 2019 or COVID-19 on the economy.
Euben Paracuelles, chief economist for ASEAN at Japanese investment house Nomura, said the central bank’s Monetary Board could announce an off-cycle easing early this week, prior to its scheduled rate setting meeting on May 21.
“We reiterate our forecast for an additional 75 basis points of policy rate cuts by BSP to 2.5 percent, all delivered in Q2, starting with a 50 basis points cut possibly well ahead of the next scheduled meeting on May 21,” Paracuelles said.
He said the BSP is likely to further slash the reserve requirement of banks by another 200 basis points this week.
“We also expect another 200 basis points of RRR cuts, which may be delivered early, too, possibly this week,” Paracuelles said.
He said monetary policy would likely provide an immediate response as the Philippines appears to be lagging regional peers on urgently needed fiscal measures to combat COVID-19.
ING Bank Manila senior economist Nicholas Mapa said more interest rate cuts and RRR reductions are on the way.
“Look for a 50 basis points cuts on or before the May meeting and 200 basis points RRR reduction in the near term,” Mapa said.
Mapa added fiscal effort needs to step up big time as the BSP can only lend money, but not spend it.
BSP Governor Benjamin Diokno said on Sunday bolder moves, including deeper rate cuts and further lowering of the level of deposits banks are required to keep with the central bank, are needed for a soft landing for the Philippine economy amid the unprecedented crisis.
“It is now clear that reverting to where we were in 2018 – policy rate at three percent – is no longer an appropriate policy goal. A deeper cut is warranted in response to the expected sharp economic slowdown,” Diokno said earlier.
Philippine National Bank economist Jun Trinidad said the BSP is set to cut interest rates by 50 basis points and further slash the RRR by another 100 basis points on May 21 to cushion downside demand risks amid the deflationary setting due to the virus outbreak.
Trinidad said inflation this month is expected to fade to two percent or even lower after easing to 2.5 percent in March from 2.6 percent in February.
“Beyond logistical issues, weaker commercial demand with the shutdown of malls and restaurants, and higher unemployment emerging as painful trade-offs to stabilizing the rising COVID-19 infections, would blend with low oil prices to eventually show up in faster disinflation,” Trinidad said.
Trinidad said there would be lackluster demand side pressures, as well as the oil price pass-through, to overcome supply-side shocks in the second quarter after Malacañang extended the enhanced community quarantine in Luzon until April 30.
The benign inflation environment and slower than expected gross domestic product (GDP) growth allowed the BSP to cut interest rates by 150 basis points since May last year.
Source: https://www.philstar.com/business/2020/04/14/2007051/economists-see-out-cycle-rate-cut