Monetary easing seen to continue in 2020

Monetary easing will resume next year as the rate of increase in prices of basic commodities is expected to remain soft and within government target, London-based Capital Economics said.

“Inflation rebounded to 1.3 percent year-on-year in November, from 0.8 percent in October. The headline rate should continue to rise over the coming months as the high bases in fuel and food prices fade from the annual comparison,” Capital Economics said in a Dec. 17 report titled “Hong Kong’s troubles benefiting Singapore.”

November inflation was the highest in three months and ended five straight months of declining year-on-year headline rates.

“But underlying price pressures are set to remain low and inflation is still likely to stay below the midpoint of the central bank’s (Bangko Sentral ng Pilipinas) 2-4 percent inflation target for some time,” Capital Economics said.

While the BSP kept the policy rate at 4 percent during last week’s policy meeting, Capital Economics said the central bank “left the door open to further easing,” noting that Governor Benjamin Diokno later on “commented that he expects about 50 basis points (bps) of cuts next year.”

Earlier, Capital Economics also projected 50 bps in interest rate cuts in 2020.

This year, the BSP cut key rates by a total of 75 bps.

Last year, the BSP hiked the policy rate by a total of 175 bps to 4.75 percent as headline inflation hit a 10-year high of 5.2 percent due to new or higher excise taxes slapped on consumption under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, skyrocketing global oil prices, and domestic rice supply bottlenecks.

“The Governor stated that the [BSP] was in no hurry to make further cuts to the reserve requirement ratio (RRR) as it waits to observe the effects of this year’s cuts totaling 400 bps. So far, reductions to the RRR have failed to stop the slowdown in credit growth,” Capital Economics said.