THE Bangko Sentral ng Pilipinas (BSP) will continue to cut interest rates this year despite tamer inflation in recent months as this is expected to boost growth, local economists said.
Economists at the ING Bank and Fitch Solutions believe that BSP Governor Benjamin E. Diokno may cut rates by another 25 basis points (bps) as an “insurance” to support economic growth.
Fitch Solutions, the research arm of Fitch Group, also said in a recent research note that a rate cut of 25 bps is possible this year.
“The BSP cut its key policy rate 75 basis points in 2019 and lowered the reserve requirement ratio [RRR] from 18 percent to 14 percent.
We expect another ‘insurance cut’ to the key policy rate in early 2020, by 25 bps to 3.75 percent, and note further reductions to the RRR are also likely,” it said. ING Bank Manila economist Nicholas Mapa said the rate cut will help the Philippines battle headwinds that threaten its economy.
“Diokno will look to sneak in a rate cut or two to help provide the economy an additional shot in the arm, all the more now with headwinds threatening to slow already compromised economic growth momentum,” said Mapa.
Fitch Solutions said a rate cut should also support credit supply, which slumped through 2019 and will fuel domestic demand.
While Diokno previously indicated he was in “no hurry” to reduce the banks’ RRR given last year’s aggressive reduction of 400 bps, Mapa said he expects further reductions to the RRR this year, but only if bank lending growth improves.
“Bank lending has reversed its downtrend but it may take a couple more months before we see monetary policy feed through,” the economist said.
The Monetary Board is expected to have its next monetary policy meeting on February 6.
In their December 12 meeting, Diokno and the Monetary Board decided to keep the country’s monetary policy levers unchanged, as growth trended higher and inflation remained within target range towards the end of 2019.
For both 2020 and 2021, inflation is projected to settle at 2.9 percent.