Think tank hints of 50 bps rate cut this year

MANILA, Philippines — The Philippines is among the countries in Asia Pacific with the most room for monetary easing this year due to decelerating inflation and weaker growth prospects, said UK-based think tank Oxford Economics.

The firm said it expects the Bangko Sentral ng Pilipinas (BSP) to cut policy rate by as much as 50 basis points within the year.

“A sharp policy reversal by the US Federal Reserve, subdued inflation across the region, and weak growth prospects have opened the door for easier monetary policy across Asia (excluding Japan) this year,” Oxford Economics said in a research brief issued yesterday.

Among countries in the region, the Philippines and India are the mostly likely to unwind last year’s aggressive monetary policy tightening.

“Under the direction of new, dovish central bank governors, we now expect both India and the Philippines to cut policy rates this year,” the research firm said.

“A sharp deceleration in inflation in India and the Philippines means we forecast both economies to cut policy rates. We forecast India to decrease its policy rate by a further 25 basis points, with the Philippines to lower rates by 50 basis points over the course of 2019,” it added.

Oxford Economics said the BSP is not expected to suddenly reverse the 175 basis points rise in policy rates last year because of the wide current account deficit and external risks and the strengthening US dollar.

As such, the BSP can be expected to cut policy rates by 25 basis points by the second quarter of the year and by another 25 bps by the third quarter of 2019.

“With inflation set to fall back within the two up to four percent target range in the first half, we now look for the BSP to reverse last year’s 175-basis point rise in policy rates,” the firm said.

“However, we believe that the reversal in rates this year will be modest, as we forecast only a marginal narrowing in the current account deficit. This means it is still vulnerable to renewed emerging market risk aversions and US dollar strength,” it added.

As widely expected, the BSP kept its key policy rates steady this month as it recognized risks to economic growth.

The BSP’s policy-setting body, the Monetary Board, kept the overnight reverse repurchase rate at 4.75 percent, the overnight deposit rate at 4.25 percent and overnight lending rate at 5.25 percent.