JP Morgan sees further SDA rate cut

MANILA, Philippines - JP Morgan Chase Bank NA expects the Bangko Sentral ng Pilipinas (BSP) to cut interest rates on special deposit accounts (SDAs) by another 50 basis points (bps) this year.

JPMorgan Chase economist Matt L. Hildebrandt said another 50 bps cut in SDA rate looms, on top of the successive 50-bps rate cuts this year, even if the timing is uncertain.

“This would leave the SDA and the repo rates each 200 bps below and above the reverse repo rate (currently 3.5 percent),” Hildebrandt said in a report.

He explained that consumer prices rose 0.3 percent month-on-month in July, leaving them up 2.8 percent quarter-on-quarter from 1.7 percent in June.

Despite the higher sequential rates, prices rose only 2.5 percent in July compared to 2.8 percent in June, he said.

“This leaves the consumer price index (CPI) below the BSP’s four percent plus-minus one percent target range for the fourth straight month,” the bank economist said.

Core prices (excluding food and energy) rose 0.2 percent month-on-month and up 1.1 percent quarter-on-quarter. Core prices were up just 2.3 percent compared to 2.9 percent in July, leaving them at their lowest rate since the global recession, Hildebrandt said.

Price pressures were concentrated in food and transport.

Food rose 0.4 percent month-on-month, for the third straight month leaving prices up 3.6 percent quarter-on-quarter, after more benign readings in prior months.

Transport prices rose 0.7 percent month-on-month, following a 0.8 percent gain in June, but these two monthly increases came on the back of four monthly declines.

Thus, the sequential trend rate continued to fall, down 0.1 percent quarter-on-quarter, compared to much deeper declines in prior months. Outside of food and transport, monthly sequential price gains were contained, the JP Morgan economist said.

Since January 2012, inflation has logged below three percent in 10 out of 19 months. Moreover, in the last few months, core inflation has started to materially slow as well.

Thus, price pressures remain broadly benign despite strong growth in recent quarters, he pointed out.

“Such an environment does not place pressure on BSP to adjust its policy stance in either direction, which is why we expect the policy rate will remain unchanged for the foreseeable future,” he explained.