ING Bank expects the Bangko Sentral ng Pilipinas to cut one more time the benchmark interest rates before the close of the year as inflation is seen to continue its downward trajectory in the months ahead.
The bank’s observation was contained in a report Friday following the BSP’s 25-basis-point cut in policy rates to 4 percent Thursday.
“As expected, the BSP delivered a 25bp rate cut at the meeting yesterday as inflation dipped below the central bank’s 2-4 percent medium-term policy target. Governor (Benjamin) Diokno sees continued benign inflation outlook providing room for a further rate reduction to support growth,” ING said.
“We see inflation downtrend nearing its trough, and so is the BSP policy rate. That said, we won’t rule out one more rate cut before the yearend,” the bank said.
The Monetary Board, the policy-making body of the BSP, also cut the interest rates on the overnight deposit and lending facilities to 3.5 percent and 4.5 percent, respectively.
Diokno said price pressures had eased further since the previous meeting. Latest baseline forecasts of the BSP continue to indicate that inflation is likely to settle within the lower half of the target range of 2 percent to 4 percent from 2019 to 2021.
“Inflation expectations also remain well anchored within the inflation target range based on BSP’s survey of private-sector economists,” Diokno said.
He said the board noted that the balance of risks to inflation outlook had shifted toward the upside for 2020, while it is seen to tilt to the downside for 2021.
Diokno said upside risks to inflation over the near term stemmed mainly from volatility in oil prices due to geopolitical tensions in the Middle East and from the potential impact of the African swine fever outbreak on food prices.
Diokno further said the prospects for global economic growth were likely to remain weak owing mainly to uncertainty over trade policies.
The board reduced the inflation forecast this year to 2.5 percent from the previous estimate of 2.6 percent made in the Aug. 8 meeting. But the forecasts for 2020 and 2021 were kept steady at 2.9 percent.
Edna Villa, sector in charge of the BSP’s Monetary and Economic Sector, said monetary authorities would continue to closely monitor domestic and global developments as pertinent factors in deciding whether to further tweak the policy stance.
DBS Bank of Singapore expected the rate cut on Thursday, saying the policy mix was needed to achieve the government’s full-year growth target of 6-7 percent.
“… We see room for further easing especially if growth fails to pick up. The cumulative 50 bps easing this year has only partially unwound the 175bps increase carried out last year,” DBS said.
Inflation rate in August further slowed to a 35-month low of 1.7 percent from 2.4 percent a month ago, prompting economists to believe that monetary authorities would further reduce the policy interest rates.