More rate cuts this year — ANZ

MANILA, Philippines — ANZ Research said the Bangko Sentral ng Pilipinas (BSP) may resume its easing cycle starting next month as it continues to reverse the tightening episode last year wherein benchmark rates were lifted by 175 basis points to prevent inflation from spiraling out of control.

In its latest economic outlook, ANZ said the BSP may cut interest rates by another 50 basis points this year after a 25 basis points cut last May 9.

“We expect two cuts of 25 basis points each in the policy rate in August and November,” it said.

Based on the latest assessment of the BSP, it now expects inflation to average 2.7 percent this year and three percent next year.

“Our inflation forecasts match the BSP’s previous forecasts. While the overall inflation outlook is benign, a potential El Niño event and its impact on rice and corn production are key upside risks,” ANZ said.

Inflation averaged 3.6 percent from January to May and is now within the BSP’s two to four percent target.

ANZ said the slower economic growth should curb inflationary pressures for the rest of the year, although the easing in inflation largely reflects the monetary tightening last year and non-monetary measures such as the rice tariffication bill.

The BSP adopted a prudent pause last June 20 after slashing interest rates by 25 basis points last May 9 to assess previous monetary actions including the reduction of the reserve requirement ratio for big and mid-sized banks by 200 basis points and for small banks by 100 basis points.

“Data releases in the next one to two months, such as muted inflation figures for June and July, and relatively weak second quarter GDP data, could be sufficient information to prompt the BSP to make a 25 basis points cut at its August meeting,” it said.

ANZ said the BSP is further slashing interest rates by another 25 basis points in November and the level of deposits banks are required to keep with the central bank by another 100 basis points before the end of the year.

“The current environment of easing policy rates and rising liquidity has provided a positive backdrop to the peso bond market, especially for the long end of the curve. We expect this to continue into the near term, given our expectation of further cuts in the policy rate and reserve requirement ratio,” ANZ said.