BSP forecast to cut interest rates further

The Bangko Sentral ng Pilipinas (BSP) may cut interest rates by a total of 50 basis points more this year, all within the first semester, to cushion against the economic fallout from the coronavirus (COVID-19) epidemic, an economist from Philippine National Bank said.

Citing benign trajectory amid downside risk to the growth outlook, PNB economist Jun Trinidad sees the BSP cutting key interest rates by 25 basis points this March 19 and another 25 basis points on May 21.

As such, PNB revised its outlook on BSP interest policy rate by yearend to 3.25 percent from 3.75 percent previously.

“Similar to the recent [US Federal Reserve] recent rate cut decision, we expect BSP to front-load monetary accommodation in the first half 2020 to mitigate COVID-19’s downside risks that are likely concentrated in first quarter 2020 while exploiting local inflation’s gradual path to normalization,” Trinidad said.

In a surprise move, the Fed slashed interest rates by 50 basis points last Tuesday to counter the dampening effect of COVID-19.

For its part, the BSP has so far this year cut key interest rates by 25 basis points to 3.75 percent during its monetary setting in February.

The inflation-targeting BSP is seen to have leeway in cutting interest rates given that the inflation rate in February was better than anticipated at 2.6 percent year-on-year, lower than consensus forecast of 3 percent.