ING Bank Manila said Wednesday it expects the Bangko Sentral ng Pilipinas to resume policy easing by early 2020 if inflation rate remains close to the midpoint of the target range of 2 percent to 4 percent.
ING Bank Manila senior economist Nicholas Mapa said in a report BSP Governor Benjamin Diokno remained open to easing monetary policy further despite his previous announcement that “monetary policy is appropriate” as of the moment.
“What is clear is that Diokno is watching inflation as he says that the BSP will be ‘more confident to do something’ if the projected uptick in inflation does not materialize,” Mapa said.
“If the expected rebound in headline inflation remains close to 3 percent in 2020, we can expect the BSP to be open to cutting policy rates further in early 2020 as the Philippines chases a higher growth target of 6.5 to 7.5 percent,” Mapa said.
Diokno earlier said his decisions would remain data dependent and not date dependent, with all eyes on next week’s November inflation print.
“Inflation is set to bounce in November after touching what will likely be the bottom [0.8 percent in October] for 2019 as base effects wash out quickly,” Mapa said.
Diokno told reporters at the sidelines of an event in Pasay City on Monday there was a possibility that monetary authorities would do one final cut in policy interest rates this year. He said, however, that monetary authorities would continue to be data dependent.
“That [interest rate cut] is possible… The BSP will always be data dependent, so we will evaluate,” he said.
Diokno said amid the ongoing reforms, it would be appropriate to do “gradual” rate cuts, “so you can monitor the developments”.
“That is the suggested move because any drastic move could be disruptive to the system,” he said.
Global debt watcher S&P Global Ratings said in a report that following policy rate cuts by 75 basis points so far in 2019, “we expect another 25 bps rate cut later this year [which] should bring the overnight reverse repurchase rate to 3.75 percent.”
“We anticipate a total rate cut of 75 bps in 2020. This would reverse the interest rate hikes during 2018 when capital outflow and inflationary pressures led the central bank to raise policy rates by 175 bps,” it said.
Inflation in October further dipped to a 42-month low of 0.8 percent from 0.9 percent in September, tempered by base effects and slower increases in the prices of food and oil.
This brought the average inflation in the first 10 months to 2.6 percent, below the midpoint of the target range of 2 percent to 4 percent this year.