Think tank sees 2 more BSP rate cuts this year

MANILA, Philippines — After Thursday’s policy easing by the Bangko Sentral ng Pilipinas (BSP), two more rate cuts that will take the key rate to 3.50 percent can be expected, with the next to be implemented toward the end of the year, said London-based think tank Capital Economics.

The research firm said the benign outlook for inflation and the “worsening outlook for growth” makes further policy loosening “very likely.”

“We have pencilled in two further cuts, taking the policy rate to 3.50 percent. The next cut will probably come towards the end of this year,” it said.

It noted that before Thursday’s decision, the consensus forecast was for the policy rate to end at four percent in 2020.

Growth in consumer prices slowed down to 1.7 percent in August from 2.4 percent in July largely due to falling food and fuel prices.

While BSP Governor Benjamin Diokno acknowledged that the upside risks to inflation have risen because of African swine fever, tensions in the Middle East and transport price hikes, it still lowered its inflation forecast for this year to 2.5 percent from 2.6 percent previously.

The central bank still expects headline inflation to settle at the lower end of its two percent to four percent target until 2021.

“We also expect inflation to remain weak. Rice prices have continued to fall and are likely to remain low following the lifting of import quotas late last year. Meanwhile, lower global oil prices should lead to a fall in domestic fuel price inflation,” said Capital Economics.

“While oil prices shot up earlier this month in response to the attacks in Saudi Arabia, that spike has mostly unwound. Oil prices are well below the level they reached a year ago, and this should feed into falling oil price inflation over the coming months,” it added.

Slower economic growth is also expected to keep a lid on price pressures.

“The upshot is that inflation is likely to dip below one percent over the next month and remain subdued over the coming year,” said Capital Economics.

The economy grew by 5.5 percent in the second quarter of the year, the slowest in four years. The poor outlook in exports because of the slower global economy is expected to become a drag on growth.