Moody’s Analytics: One more rate cut by BSP in 2019

The Bangko Sentral ng Pilipinas’ (BSP) decision last week to cut interest rates and also again slash banks’ reserve requirements by November would not be the last of the monetary easing by the central bank this year, the research arm of debt watcher Moody’s said Monday.

“We expect to see at least one more 25-basis point (bp) reduction in 2019,” Moody’s Analytics said in a report.

The cumulative 75-bp reduction in the key policy rate to 4 percent so far this year came on the back of a “need to bolster domestic demand” as economic growth slowed to an over five-year low of 5.5 percent in the second quarter and “substantially” cooling inflation since October last year, Moody’s Analytics said.

In a separate report, London-based Capital Economics said the BSP was “now in full-on easing mode.”

“Having cut interest rates by 25 bps at its scheduled monetary policy meeting on Thursday, the BSP [on Friday] announced plans to reduce the reserve requirement ratio (RRR) by a further 100 bps,” Capital Economics senior Asia economist Gareth Leather noted in a Sept. 27 report titled “Weak Singapore data, loosening in the Philippines.”

In a move that surprised the market as it was made just one day after the policy-setting Monetary Board slashed the policy rate to 4 percent, the BSP announced that universal and commercial banks’ RRR will be further reduced to 15 percent on the first day of the first reserve week of November from the current 16 percent; thrift banks, to 5 percent from 6 percent; and rural banks, to 3 percent from 4 percent at present—a follow-through to the earlier 200-bp reduction.

“The move comes in response to a sharp slowdown in both credit and money supply growth,” Leather said.

For his part, Capital Economics Asia economist Alex Holmes said that “with growth likely to disappoint and price pressures set to remain subdued, we expect more [interest rate] cuts in the coming quarters. “Holmes said they expected the BSP to cut the policy rate two more times to 3.5 percent—“the next cut will probably come towards the end of this year.” —BEN O. DE VERA