BSP to keep trimming rates this year – analysts

MONETARY policy easing in the Philippines is likely to continue this year following the 25-basis-point (bp) cut in the central bank’s key interest rates last week, analysts said in separate reports.

ANZ Research analysts Mustafa Arif and Sanjay Mathur expect the Bangko Sentral ng Pilipinas’ (BSP) policymaking Monetary Board to implement a further 50 basis points in cumulative cuts for the rest of 2019.

“Although the BSP maintains that risks to 2019 inflation are balanced, comments around slower global growth momentum, as well as tightening liquidity conditions, suggest that further rate cuts remain on the table,” they said.

Nomura Securities Ltd. economist Euben Paracuelles continues to expect a total of 50bps in policy rate cuts this year, with the central bank cutting again in the third quarter.

“That said, we believe there is a risk that BSP could do more given its easing bias,” he said.

ING Bank Asia economist Prakash Sakpal pencilled one more 25bp rate cut in the fourth quarter, saying that “though an earlier cut than that would be a better preemptive cushion for the economy amid escalated global trade tensions.”

Following a series of rate hikes last year, monetary authorities reduced the central bank’s overnight borrowing, lending and deposit rates by 25bps to 4.50 percent, 5 percent and 4 percent, respectively, last Thursday.

RRR cut
Meanwhile, some of the analysts also believe that monetary authorities are poised to reduce banks’ reserve requirements.

“The Monetary Board will also be considering changes in the reserve requirement ratio (RRR) at its meeting next week,” ANZ Research analysts said, expecting a 100bps reduction and a cumulatively cuts of more than 200bps in full year 2019.”

Paracuelles, on the other hand, said Nomura maintained its forecast of 200bps in RRR cuts in the second quarter, which would be “likely delivered next week and then in June via intermeeting announcements.”

The RRR is the proportion of deposits that banks need to keep with the central bank against the sum they can loan out to borrowers. It is currently at 18 percent following two cuts last year.

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