Rate cuts to start May – Standard Chartered
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Sun, 10 Mar 2019 16:25:14 +0000
Monetary authorities will likely move to relax policy beginning May via interest rate cuts that will total 100 basis points this year, a banking giant said.
“We now expect Bangko Sentral ng Pilipinas (BSP) to respond with policy rate cuts starting in May 2019, partially reversing last year’s hikes,” Standard Chartered Bank said in a report released late last week.
The adjustments will be spread over the May, June and August meetings of the BSP’s policy-making Monetary Board, it added.
Last year, monetary authorities raised key interest rates five consecutive times or a total of 175 bps after inflation breached the 2.0-4.0 percent target starting March.
Consumer price growth peaked at a nine-year high of 6.7 percent in September-October but has eased since then, prompting the Monetary Board to pause from further tightening in December and February.
Inflation finally returned to the 2.0-4.0 percent government target last month, slowing to 3.8 percent, and some analysts expect the BSP to resume adjusting policy as early as this month given remarks from the new central bank chief.
Standard Chartered expects inflation to fall below 2 percent in the third quarter due to a high base and the fading of one-off boosts from tax reforms and poor weather.
The bank revised its average inflation forecast for this year to 2.7 percent, down from the previous 3.5 percent, and said that “lower inflation is likely to further tighten already-tight monetary conditions.”
Taking these into consideration, Standard Chartered expects monetary authorities — comforted by inflation prints showing further easing in March and April — to cut rates by 25 bps in May.
“We forecast a 50-bps cut in June and a 25-bps cut in August as inflation continues to decline,” it added.
Newly installed BSP Governor Benjamin Diokno last week said policy rate cuts were possible given slowing inflation, but added that more data was needed before they pulled the trigger.
“Given the decelerating inflation in the Philipines, there’s an opportunity for monetary easing…,” he told reporters.
He stressed, however, that policy decisions would remain data dependent, “so we will look at those data and make a decision based on that.”
The Monetary Board is scheduled to meet on March 21 for its second policy meeting this year.
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