June 24, 2019
MONETARY policy easing in the Philippines is likely to resume as early as August after the Bangko Sentral ng Pilipinas (BSP) paused on reducing interest rates last week, according to HSBC.
In a comment released late last week, HSBC economist Noelan Arbis said the banking giant saw scope for such easing ahead, “given [the] relatively tepid domestic growth, a less hawkish Fed (US Federal Reserve), and a more benign inflation trajectory in the second half of the year.”
“We forecast a 25bp (basis point) policy rate cut in [the] third quarter (likely in August), which coincides with the release of the country’s second quarter GDP (gross domestic product) [data],” he added.
The central bank’s policymaking Monetary Board decided on June 20 to take a “prudent pause” on its monetary policy easing, resulting in overnight borrowing, lending and deposit rates remaining at 4.50 percent, 5.00 percent and 4.00 percent, respectively.
Monetary authorities are set to convene again on August 8 for their fifth rate-setting meeting for 2019.
Going forward, Arbis said HSBC also expected more policy rate cuts next year, with the expectation that the benchmark interest rate would be at 3.75 percent by end-2020.
HSBC also sees continued cuts to banks’ reserve requirement to the central bank.
Arbis said the reserve requirement ratio (RRR) would be slashed further by 100bps in the fourth quarter and by a total of 200bps in 2020.
Next year’s cuts, however, may be staggered at 50bps each quarter to reduce financial stability and inflation risks, he added.
“In total, we expect the RRR to be at 15 percent by end-2019 and at 13 percent by end-2020, enabling the BSP to keep pace with its target of reducing the RRR to ‘single-digits’ by 2023 and facilitating greater monetary transmission,” the economist said.
The RRR is the proportion of current deposits that banks need to keep with the central bank against the sum they can loan out to borrowers.
Early last month, monetary authorities reduced banks’ RRR by 200 bps, from 18 percent to 16 percent.
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