Bangko Sentral ng Pilipinas (File photo / Philippine Daily Inquirer)
The economy has been absorbing the recent easing moves of the Bangko Sentral ng Pilipinas (BSP) much faster than the previous rate-cutting cycle, Nomura said, making monetary policy a stronger source of support for the economy amid uncertainty over the second Donald Trump presidency.
In a report, the Japanese investment bank said such was also the case for other Southeast Asian countries like Indonesia and Thailand, adding that improving policy transmission could help mitigate headwinds from abroad.
In the Philippines, monetary policy typically works with an estimated lag of nine to 12 months.
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But Nomura’s own estimate showed that the half-point cumulative cuts so far this year have since brought down bank lending rates by 41 basis points (bps), suggesting an 81.5-percent pass-through that is much higher than the 34-percent transmission recorded during the last easing cycle in 2019 to 2020.
The shorter lag, Nomura said, was due to the impact of structural reforms by the BSP, including its policy corridor framework in 2016 and the introduction of more liquidity management tools.
“Overall, owing to improving policy transmission, the additional policy rate cuts we forecast in this cycle… should be more effective than before in boosting domestic demand, and help to provide some offset to external headwinds from Trump’s policies,” it added.
An Inquirer poll of economists expects the powerful Monetary Board (MB) to cut the central bank’s key rate by 25 bps at its Dec. 19 meeting, citing the benign inflation uptick in November and the below-market consensus economic growth in the third quarter.
That decision would put the benchmark lending rate that banks typically use as a guide when charging interest on loans at 5.75 percent, staying on easing mode following two quarter-point cuts each at the last August and October meetings of the MB.
Moving forward, Nomura said the recent cut to banks’ reserve requirement would help the economy absorb the rate reductions much faster.
“If inflation continues on a downward path, as we expect in the near term, BSP will likely look to further remove the restrictiveness in the monetary stance to support a recovery in domestic demand,” it said.