BSP rate cuts seen

With the country’s inflation rate hovering at its lowest in nearly two years, the Bangko Sentral ng Pilipinas (BSP) is seen further cutting key rates this year.

In a research note issued on Friday, Japanese investment house Nomura said that it expects the inflation-targeting BSP to reduce its overnight policy rates by a total of 50 basis points (bp) this third quarter, allowing the local monetary authority to focus on supporting growth. It sees a 25-bp cut in each of the next two meetings in August and September.

British bank HSBC, for its part, is expecting two 25-bp overnight policy rate cuts this second semester, with the first cut seen in August.

In addition, HSBC is expecting a 100-bp cut to the reserve requirement ratio in the fourth quarter.

Dutch bank ING is projecting a policy rate cut by the BSP at its August meeting “should inflation continue to show it will remain within target and second quarter growth is projected to be soft.”

“BSP Governor (Benjamin) Diokno has sounded off on the possibility of more policy rate cuts within the year and the slower inflation print should afford them proper scope to ease monetary policy further. With inflation well-within target, BSP will likely look to tap on the accelerator once more after having slammed hard on the brakes in the previous year,” ING Philippines economist Nicholas Mapa said.

With the June inflation print helping year-to-date inflation settle at 3.4 percent, an affirmation that inflation remains “well-behaved” enough, Mapa said the BSP’s full-year 2019 inflation forecast of 2.7 percent now looked more probable.

Nomura economist Euben Paracuelles sees the country’s full-year inflation averaging at 2.8 percent, well within the BSP’s 2 to 4 percent target. The decline in headline inflation in June, the economist said, marked the start of a disinflation trend in coming months.