Rate cuts seen to resume next year
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Fri, 13 Dec 2019 17:54:38 +0000
PHILIPPINE monetary authorities are expected to resume the central bank’s policy easing next year after pausing at their last rate-setting meeting on Thursday.
This is according to reports from Fitch Solutions, Capital Economics, ING Bank Manila and ANZ Research after the policy-making Monetary Board kept the Bangko Sentral ng Pilipinas’ (BSP) overnight borrowing, lending and deposit rates at 4.00 percent, 4.50 percent and 3.50 percent, respectively.
In a report released on Friday, Fitch Solutions maintained its view that the BSP will opt to cut its key policy rate again by 25 basis points (bps) in 2020.
“Our view is supported by the fact that external conditions are likely to remain challenging for the Philippine economy over the coming quarters,” it said.
The Fitch Group unit believes that underlying trade disagreements between the United States and China are unlikely to be resolved, and this would prolong uncertainty next year.
Growth in both countries also looks set to slow, along with protest-rocked Hong Kong.
“These represent key export markets for the Philippines, with the US and Hong Kong the first and second most frequent destination for goods from the Philippines as of 2018,” Fitch Solutions said.
It also said slowing growth in China would likely weigh on global trade again in 2020, noting that “subdued outlooks for the eurozone and Japanese economies also paint a less favorable external backdrop over the coming quarters.”
Meanwhile, Capital Economics is sticking with its forecast of cumulative 50 bps cuts in 2020, taking the policy rate to 3.5 percent.
“The main reason we think the BSP will cut interest rates again is that growth is likely to disappoint,” Capital Economics economist Alex Holmes said.
He noted that while Philippine economic growth accelerated in the third quarter, “with weak global demand set to drag on exports, a strong rebound in growth over the coming quarters is unlikely.”
Economic growth accelerated to 6.2 percent in the July-to-September period after the slower-than-expected 5.6-percent and 5.5-percent expansions in the first and second quarters.
ING Bank Manila expects the Bangko Sentral to cut its policy rate by 25 bps as early as its February 2020 meeting and ease by a total of 50 bps next year.
Its senior economist, Nicholas Antonio Mapa, explained that the forecast was based on his firm’s view that the country was likely to post a relatively disappointing growth print for 2019, given the budget impasse early in the year and the meltdown in capital formation.
This, he said, would “prompt the self-professed pro-growth [BSP] Governor (Benjamin Diokno) to come out with additional easing to open 2020.”
ANZ Reserch expects another 50 bps reduction in total next year amid lower-than-potential growth and a favorable inflation outlook.
“Weaker-than-expected GDP (gross domestic product) growth in the fourth quarter and sustained weakness in lending activity and imports may prompt the BSP to resume easing as early as first quarter next year,” ANZ Research chief economist Sanjay Mathur and economist Mustafa Arif said.
Monetary authorities kept their 2.4-percent inflation forecast for 2019 and 2.9-percent outlook for 2020 and 2021.