The Bangko Sentral ng Pilipinas (BSP) kept its policy levers unchanged in its last monetary- policy setting meeting for the year, as growth accelerated and inflation has remained within target range.
BSP Governor Benjamin E. Diokno announced on Thursday that the Monetary Board has decided to maintain the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 4 percent. Accordingly, the interest rates on the overnight deposit and lending facilities were kept unchanged at 3.5 percent and 4.5 percent, respectively.
“The Monetary Board’s decision is based on its assessment of a benign inflation environment,” said Diokno.
“Notwithstanding the weak global growth outlook, prospects for the Philippine economy continue to be robust on the back of firm domestic demand. Sustained policy support from increased fiscal spending, as well as improved domestic liquidity conditions owing to recent monetary adjustments, is also expected to support growth in the coming months,” he added.
The Monetary Board also retained all inflation projections made during the November policy meeting.
In particular, for this year, BSP officials announced at the post-monetary meeting press briefing that inflation is expected to average at 2.4 percent.
For both 2020 and 2021, inflation projection has been set at 2.9 percent
Diokno said the balance of risks to the inflation outlook continue to lean slightly toward the upside in 2020 and toward the downside in 2021.
“Upside risks to inflation over the near term emanate mainly from potential volatility in international oil prices amid geopolitical tensions in the Middle East, as well as from the potential impact of the African swine fever outbreak, and recent weather disturbances on domestic food prices,” he said.
“However, uncertainty overtrade policies in major economies continue to weigh down on global economic activity and demand, and could thus mitigate upward pressures on commodity prices,” Diokno added.
With two back-to-back pauses in monetary policy easing, economists believe that the BSP will continue to cut rates by next year.
“The Philippines is expected to post a relatively disappointing growth print for 2019, given the government budget delay and meltdown in capital formation, and we expect this to prompt the self-professed pro-growth governor to come out with additional easing to open 2020,” said ING Bank Manila economist Nicholas Mapa.
“GDP growth will likely cling to the lower-end of the government’s 6-percent to 6.5-percent target, with the Philippine economy needing stimulus from both the fiscal and monetary sides of the fence. Given this outlook, we expect the BSP to cut its policy rate by 25 basis points as early as the February 2020 meeting and ease by a total of 50 basis points next year,” he added.
Security Bank Chief economist Robert Dan Roces said, “better credit growth and possible resumption of monetary easing in 2020 should positively affect domestic economic growth.”
JPMorgan economist Nur Raisah Rasid also expects the resumption of cuts in key rates in the early part of 2020.
“We expect some recovery in GDP growth from 5.8 percent this year to 6.1 percent next year. However, this implies an undershooting of the government’s 6.5-percent to 7.5- percent medium-term GDP growth target range. Thus, we maintain our policy call for a 25 basis points easing for the first quarter of 2020,” the economist said.
The next policy meeting of the Monetary Board is scheduled on February 6, 2020.