The Bangko Sentral ng Pilipinas (BSP) may still not be done with the trimming of key interest rates this year, J.P. Morgan said.
In its “Global Data Watch: Asia” report, the American investment bank said it expects monetary authorities to cut policy rates by 25 basis points (bp) in the next Monetary Board (MB) meeting.
“We expect a further 25-bp rate cut at the August 20 MB meeting as real rates are set to remain positive more broadly in a benign inflationary environment,” it said.
J.P. Morgan said it believes further easing of policy rates could help the Philippines pick up its pace in economic recovery.
BSP recently reported that the gross domestic product (GDP) is expected to decline by 5.7 percent to 6.7 percent in the second quarter, which is substantially steeper than 0.2-percent contraction three months earlier.
“In such a challenging environment, which may imply a more protracted domestic recovery than initially projected, the BSP stressed the need for continuing policy measures to support overall economic activity, which likely culminated in this week’s policy action,” J.P. Morgan said.
“Mobility measures more recently point to only a gradual recovery in mobility, which suggests a delay in normalization in activity,” it added.
Last week, the Monetary Board trimmed the interest rate on BSP’s overnight reverse repurchase facility by 50 bp to 2.25 percent, bringing deposit and lending rates to 1.75 percent and 2.75 percent, respectively. The new policy rates were effective beginning June 26.
MB said that local economic activities have slowed down following the implemented lockdown to contain the virus. While economies have begun reopening, it noted that recovery would likely be “protracted and uneven.”
“Given these considerations, the Monetary Board decided that a further reduction in the policy rate amidst a benign inflation environment would help mitigate the downside risks to growth and boost market confidence,” BSP said.
BSP forecasts inflation to settle near the low end of 2.0-4.0-percent target band for 2020 to 2022.