Moody’s sees next interest rate cut in third quarter of 2019

The research arm of debt watcher Moody’s sees the next interest rate cut by the Bangko Sentral ng Pilipinas (BSP) highly likely in the third quarter after it took a break from monetary easing last week.

“The BSP surprised markets and kept the policy rate on hold at 4.5 percent in June,” Moody’s Analytics said in its June 21 Asia-Pacific weekly report e-mailed to reporters on Monday (June 24).

It said the BSP’s move to stop cutting interest rates was “prudent.”

The BSP took a break from cutting interest rates for fear that it could aggravate an inflation increase attributed to several factors, including the prolonged drought brought by El Nino and the trade war between the world’s two biggest economies, China and United States.

The move was also taken as a reduction in reserve requirement, or cash in hand, for banks started to go into full effect.

Moody’s said the BSP was “treading carefully given its mandate to maintain price stability, a sensitive issue.”

In 2018, the BSP raised key rates by a total of 175 basis points to 4.75 percent as the rate of increase in prices of basic commodities climbed to a 10-year high of 5.2 percent due to new or higher excise taxes slapped on consumption, skyrocketing global oil prices and domestic food supply bottlenecks.

Last week, the BSP announced that it had cut its inflation forecasts for 2019 and 2020 to 2.7 percent and 3 percent. (Editor: Tony Bergonia)