THE Bangko Sentral ng Pilipinas (BSP) is expected to cut key policy rates in the second half as the economy seeks further support toward recovery.
First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) said in a report that the Central Bank might still be open for a 25-basis-point cut in the next policy meetings.
“[W]e think that BSP may still cut policy rates by another 25 bps in late H2 [second half] should the economy need a further boost,” the report said.
For the rest of the year, the Monetary Board (MB) is set to have four policy meetings—one for each month—in August, October, November and December.
FMIC and UA&P said the demand for loans might be slowing down given that defaults in the near term are expected because of the current crisis amid the pandemic.
According to BSP preliminary data, the Philippine banking system’s loan portfolio stood at P10.73 trillion as of April, which is slightly lower than P10.87 trillion the previous month.
“While money growth has accelerated in April, the same cannot be said of loan growth as banks also want to keep their powder dry even as they expect more defaults in the short term,” the research said.
“However, banks need to be less risk-averse and lend more as BSP has already put in more liquidity into the financial system with its 50-bp cut in June,” it added.
MB last month 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 slashing interest rates could boost market confidence and cushion the adverse impact of the pandemic as economic activities slowed down amid the implemented lockdown measures
Last month, American investment bank J.P. Morgan said it was expecting a 25-bp cut as well this coming August.
It agreed that further easing of policy rates could help the Philippines pick up its pace toward economic recovery. BSP recently reported that the GDP is expected to decline by 5.7 percent to 6.7 percent in the second quarter, which is substantially steeper than the 0.2-percent contraction three months earlier.
Image credits: Ed Davad