Another cut in key PH rates seen

Monetary authorities are expected to cut interest rates by another 25 basis points (bps) this week amid easing inflation and slowing economic growth, London-based Capital Economics said.

“The governor of the Philippines’ central bank (Bangko Sentral ng Pilipinas, or BSP), Benjamin Diokno, has hinted strongly in the past couple of weeks that the central bank will cut interest rates, and we have penciled in another cut,” Capital Economics said in a Sept. 20 research note titled “The easing cycle continues.”

The Monetary Board—the BSP’s highest policy-setting body—will tackle the monetary policy stance when it meets on Thursday, Sept. 26.

The BSP slashed the key policy rate by 25 bps to 4.25 percent on Aug. 8.

“The main reason the central bank is cutting interest rates is the sharp recent drop in inflation. The headline rate dropped to 1.7 percent year-on-year in August and should continue to fall over the next couple of months,” Capital Economics said.

The rate of increase in prices of basic commodities fell to a 35-month low last month, bringing the eight-month average to 3 percent—within the government’s 2-4 percent target range.

“The recent spike in oil prices due to attacks on Saudi production has mostly unwound and Brent crude is now down at $65 per barrel, which is lower than its level of a year ago and is consistent with fuel price inflation in the Philippines continuing to fall,” Capital Economics added.

“Meanwhile, the economy could do with further support. Growth reached a new four-year low of 5.5 percent year-on-year in the second quarter, and while it should rise as government spending picks back up, the recovery is likely to be slow going.”

The slower economic growth posted in the first half had been largely blamed on government underspending of P1 billion a day on public goods and services from January to April, as it operated using a reenacted 2018 budget due to the delayed approval of this year’s P3.7-trillion appropriations.

The late budget implementation stemmed from legislators’ squabbles over alleged pork funds.