Economists still see key rate cuts ahead

March 23, 2019
Bangko Sentral ng Pilipinas
Bangko Sentral ng Pilipinas

Economists foresee a continued reduction in the Bangko Sentral ng Pilipinas’ (BSP) key rates as well as the reserve requirements for banks due to a sustained deceleration in the country's inflation rate.

This, even after BSP’s policy-making Monetary Board (MB) kept key rates steady during its second-rate setting meet for the year.

In a research note issued after the MB meeting decision announcement, ANZ Research noted the Board’s verdict to cut average inflation forecast for this year to three percent from 3.1 percent during its meeting last February.

It noted the Board’s observation that current policy stance remains appropriate even with sustained drop of inflation rate, with the February 2018 figure at 3.8 percent from 4.4 percent in the previous months.

It also noted monetary officials’ statement that economic growth continues to be backed by firm domestic activities but risks still remain given the delays in the passage of the 2019 national budget.

“We believe that the BSP will initiate a rate cutting cycle of a cumulative 75 bps (basis points) from May when inflation dips closer to the midpoint of its target range of 2-4 percent,” it added.

Relatively, ING Bank Manila senior economist Nicholas Mapa forecasts further cuts in the reserve requirement ratio (RRR) “in the near term”.

In a research note, he said BSP Deputy Governor Diwa Guinigundo, however, maintained that any RRR decision “must move in line with the monetary policy stance.”