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BSP expected to keep interest rates steady

By: - Reporter / @daxinq
/ 05:05 PM June 19, 2019

MANILA, Philippines — The Bangko Sentral ng Pilipinas will likely leave its key interest rate unchanged when the Monetary Board meets on Thursday for its policy setting meeting amid a benign inflation environment and an economy that needs to make up for a weak first quarter performance.

In a research note, the Manila unit of Dutch financial giant ING Bank said that the BSP will also be heavily influenced by the meeting of the latest US central bank whose Federal Open Market Committee will announce its own interest rate decision on June 19 (early June 20, Manila time).

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“Despite dovish comments from select FOMC members, the markets are not expecting the Fed to cut rates at the close of its meeting,” ING Manila senior economist Nicholas Mapa said. “Barring any surprise cut the Fed, we do not expect any fireworks from BSP at their policy meetings tomorrow.”

Along with the Indonesian central bank, which will also announce its key interest rate policy on Thursday, Mapa said the BSP is expected to “enact a ‘dovish pause’ by keeping the policy stance neutral but simultaneously signaling the increased likelihood for easing in the near term depending on prevailing conditions.”

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At present, the BSP’s overnight borrowing rate — which banks use as a basis for their own borrowing and lending rates to clients — stands at 4.5 percent, after a 25-basis point reduction last month in the face of slowing inflation.

At the urging of BSP Governor Benjamin Diokno also, the Monetary Board also approved a staggered 2-percentage point reduction in banks’ reserve requirements that will eventually bring its level down to 16 percent by the end of next month, and release almost P200 billion in fresh liquidity into the domestic economy.

The ongoing reversal in the direction of interest rates comes after last year’s cumulative 175-basis point hike to fight off the effects of inflation which rose to their highest level in nine years due to the combined effects of a rice shortage, higher fuel prices and a tax increase.

ING’s Mapa pointed out that Diokno has openly pledged to slash policy rates further noting that it would be inevitable.

“It’s safe to say that both (the Indonesian and Philippine) central banks appear ready and willing to pull the trigger on further rate cuts,” he said.

Despite his dovish comments, the ING economist noted that Diokno has stuck to his statement of invoking data dependency in the timing for his much-anticipated monetary actions.

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TAGS: BSP, Business, ING, interest
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