ING sees Bangko Sentral cutting key rate in August

The Bangko Sentral ng Pilipinas (BSP) will likely slash its key interest rates in its next policy rate setting in August now that the country is back to a regime of benign inflation rate, an economist from ING Philippines said.

ING expects the BSP to trim its overnight policy rates by up to 50 basis point in the third quarter of the year—either with a 25-bp cut in August and another 25-bp cut in September, or a one-time 50-bp cut at the Aug. 8 meet.

“We expect the BSP to monitor the level of excess liquidity in the system, however, we still expect it to pull the trigger on further RRR (reserve requirement ratio) reductions to be carried out via a phased and gradual manner, perhaps announced at a nonpolicy meeting and implemented via telegraphed 50 bps reductions in October and December,” ING Philippines economist Nicholas Mapa said in a research note.

Mapa said the BSP had decided to slash policy rates to normalize monetary policy even before the recent dovish rhetoric from US Federal Reserve Chair Jerome Powell.

He said the BSP was simply gauging the proper timing and that the now-dovish Fed outlook simply added to the host of data considered by local monetary authorities.

“As such, further easing from the BSP appears a done deal and recent pronouncements from the newly minted deputy governor, Francisco Dakila, appear to support a rate reduction at the August deal barring any improbable upward surprise in the July inflation,” Mapa said.

Local monetary officials will likely be watching the next inflation print while also turning their attention to second quarter gross domestic product growth numbers, for release on the same day as the policy meet.

By all indications, he said July inflation would likely slip below the previous month’s reading. But what BSP will monitor more closely is the inflation path over the policy horizon, he said.

“With the BSP leaving the door wide open for a rate cut in August, we now turn our attention to the magnitude of the projected rate reduction,” Mapa said.