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 paused from monetary easing last week.
“The BSP surprised markets and kept the policy rate on hold at 4.5 percent in June. The BSP opted for a ‘prudent pause’ to assess the impact of [May’s] 25-basis point rate reduction, alongside phased reductions in reserve requirement ratios [RRR] for banks,” Moody’s Analytics said in its June 21 Asia-Pacific weekly highlights and preview report e-mailed to reporters on Monday.
The BSP will implement three tranches of reduction in the RRR of universal, thrift and rural banks up to July to boost liquidity in the market.
“Another driver for the BSP holding steady was the modest uptick in inflation, which rose to 3.2 percent year-on-year in May from 3 percent in April, a 16-month low,” Moody’s Analytics added.
Last Thursday, the BSP’s policy-setting Monetary Board kept key interest rates steady to ensure that May’s inflation rise would not be aggravated by the additional liquidity being injected into the system by the three-phased RRR cut.
The government earlier attributed the uptick in May inflation to base effects as well as the impact of the prolonged dry spell due to El Niño on prices of food, beverages and agricultural products.
As of end-May, headline inflation averaged 3.6 percent, within the government’s 3-4 percent target range.
For Moody’s Analytics, the BSP was “treading carefully given its mandate to maintain price stability, a sensitive issue given CPI [consumer price index] growth peaked at 6.7 percent year-on-year in the third quarter of 2018.”
As such, “odds for another 25-bp [interest-rate] reduction in the third quarter are high,” Moody’s Analytics said.
In 2018, the BSP hiked 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 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, respectively.
The lower projections for this year and next year—from 2.9 percent and 3.1 percent, respectively, previously—were attributed to cheaper global oil prices and a stronger peso. —BEN O. DE VERA