Bangko Sentral seen easing interest rates in 2019

The Bangko Sentral ng Pilipinas may start easing the country’s monetary settings in 2019, marking a U-turn from this year’s series of interest rate increases, as inflationary pressures ease.

This was according to Nicholas Mapa, senior economist at Dutch financial giant ING, who said the BSP’s decision to keep the overnight borrowing rate at 4.75 percent on Thursday had been widely anticipated by the market.

The shift from hawkish to neutral policy has been expected given slowing inflation, which eased to 6 percent in November from a nine-year peak of 6.7 percent in September and October. By next year, Mapa said he expected the BSP turning dovish.

For its part, the BSP has lowered its inflation forecasts to 5.2 percent in 2018 (from 5.3 percent), 3.18 percent in 2019 (from 3.3) and to 3.04 percent (from 3.3) in 2020.

“The lower inflation forecasts increase the likelihood that the BSP may be done with its recent tightening cycle with the next series of moves probably in the realm of monetary easing,” Mapa said. “The BSP will likely slash reserve requirement ratios  as early as the first quarter with inflation decelerating while domestic liquidity conditions remains tight (the latest growth at 8.2 percent).”

“Meanwhile, should inflation edge closer to within target, growth decelerate until the first half 2019 and the (US Federal Reserve) Fed indeed take on a more dovish stance next year, the BSP may quickly slash its main policy rate as early as second quarter,” he said.

The economist noted that the lower inflation forecasts of the BSP across the policy horizon reflected the baseline scenario that inflation would revert to target as early as the first quarter of 2019.

Mapa said the lower inflation forecasts of BSP also likely reflected lower crude oil prices and the rollback of jeepney fares by the Land Transportation Franchising and Regulatory Board.

The inter-agency Development Budget Coordination Committee recently cut its 2019 oil price assumption to $60-75 a barrel from the previous $75-85 a barrel. Crude oil prices are projected to remain weak until next year on excess supply.

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