BSP easing cycle done this year, analysts say
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 04 Oct 2019 16:21:48 +0000
THE Bangko Sentral ng Pilipinas (BSP) may be done with its easing cycle for 2019, even as the country’s inflation decelerated further to an over three-year low of 0.9 percent in September, analysts said on Friday.
Economists from Nomura Securities Ltd. and Security Bank Corp. expect monetary authorities to pause on reducing the central bank’s key policy rates for the rest of the year.
The BSP implemented a combined 75-basis-point interest rate cut in May, August and September this year that brought overnight borrowing, lending and deposit rates to 4.00 percent, 4.50 percent and 3.50 percent, respectively.
“We reiterate our view that BSP will leave its policy rate unchanged at 4 percent for the rest of the year and for 2020, consistent with our forecast for inflation to start rising from here,” Nomura Securities Ltd. economist Euben Paracuelles said.
With year-to-date inflation averaging 2.8 percent, Nomura maintains its consumer price growth forecast to average 2.6 percent for full-year 2019, down sharply from 5.2 percent in 2018.
The projection is within the Bangko Sentral’s 2- to 4-percent target range, but above the Monetary Board’s latest forecast of 2.5 percent.
“We believe September should mark the low for inflation and expect it to start gradually picking up from here, in part, as base effects become less favorable,” Paracuelles said.
For his part, Security Bank Assistant Vice President and chief economist Robert Dan Roces believes the “central bank might have reached the end of its projected easing cycle for the year” despite having more room to adjust its policy rates amid the below-target inflation rate.
“We think that further cuts might affect real interest rates if not managed since inflation is expected to normalize next year,” he said.
Security Bank expects inflation to be below 2 percent until November, and to average 2.5 percent for full-year 2019.
He stressed, however that his view on monetary policy is not cast in stone as recent geopolitical events — the worsening US-China trade war, a slump in local investments that affects growth and instability in US markets — do give scope for the BSP to consider further cuts, should the situation warrant it.
“As we have posited before, any further cuts this year, if at all, will be as a form of insurance cuts to nudge growth in 2020,” Roces said.