The local unit of Dutch financial giant ING Bank expects the Bangko Sentral ng Pilipinas to resume its monetary policy easing in the first quarter of 2020 amid the subdued inflation and the government’s bid to stimulate economic growth.
ING Bank Manila senior economist Nicholas Mapa said in a report Wednesday the government’s “double-headed stimulus effort” would offset the threats and risks emanating from the external front.
“The 1-2 punch from the fiscal and monetary fronts will help carry growth momentum, with growth forecast to hit 6.5 percent in 2020. Given the government’s ambitious growth target of 6.5 to 7.5 percent, we forecast further easing from the BSP to restore lost growth momentum, especially in investment activities,” Mapa said.
“ING expects BSP to cut rates by 50 basis points in 2020 with the first rate cut expected in the first quarter as benign inflation dynamics allows the central bank to focus on the growth objective,” Mapa said.
Mapa said the economy hit a speed bump in the first half with growth slipping below 6 percent (5.5 percent) for the first time in four years as robust consumption failed to offset slower government spending and lackluster capital formation.
He said growth had recovered since then and the momentum to accelerate was expected despite global headwinds as the economy rediscovered its old form.
He said with inflation sliding quickly back within the 2 to 4 percent target, the Bangko Sentral decided to gradually unwind the previous year’s 175-bps rate hike salvo to provide a shot in the arm of the ailing economy.
The BSP cut policy rates by a total of 75 bps this year while also reducing reserve requirement ratios by 400 bps in a gradual and phased manner, starting in May and ending in December.
“Given ING’s inflation forecast for next year [average inflation at 3.2 percent] we expect BSP Governor Diokno to remain open to further rate reductions in the near term as he pledged to implement more ‘pro-growth policies,’” he said.
“Furthermore, with the national government chasing a higher growth target of 6.5 to 7.5 percent [in 2020], the self-proclaimed ‘pro-growth’ governor could deliver rate cuts sooner rather than later…,” Mapa said. Julito G. Rada
Diokno said last month there was a possibility for monetary authorities to do one final policy rate cut before the end of the year. He said the BSP would remain data dependent.
Inflation in October eased to a 42-month low of 0.8 percent from 0.9 percent in September, tempered mainly by base effects and slower increases in the prices of food and oil. This was significantly slower than the peak of 6.7 percent a year ago.
This brought the ten-month average to 2.6 percent, below the midpoint of the target range of 2 to 4 percent.
The government is scheduled to release the November inflation data on Dec. 5.