BSP likely to cut rates earlier than scheduled

As virus outbreak spreads

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is expected to further cut interest rates anew this month to support the economy as central banks around the world, led by the US Federal Reserve, cut their benchmark interest rates in the face of the spreading coronavirus.

American banking giant JP Morgan Chase & Co. has revised the path of monetary easing in emerging markets, expecting more rate cuts in the Philippines, China, Korea, and Indonesia after the US Fed slashed interest rates by 50 basis points in an emergency meeting.

In a report, JP Morgan said it now expects another 50-basis point rate cut by the BSP this year instead of only 25 basis points after the rate reduction of 25 basis points on Feb. 6.

“We add a 25-basis point cut in the benchmark reverse repurchase rate at the March 19 Monetary Board meeting, in addition to our forecast for a 25 basis points reduction in the second quarter, bringing the policy rate to 3.25 percent by end-2020,” JP Morgan said.

Even with the revisions in the policy rate path, JP Morgan said the room for further accommodation remains open, with regional central banks yet to catch up to the level of US Fed cuts since end 2018, reflected in a rise in the nominal interest rate differential between emerging markets in Asia and the US.

Security Bank chief economist Robert Dan Roces expects another 25-basis point cut in benchmark rates by the BSP on March 19.

“We expect the Monetary Board to cut reverse repurchase by 25 basis points in the March 19 meeting following the US Fed’s surprise 50 basis points cut. RRR reductions may follow soon after, pending forward guidance by the BSP,” Roces said.

Roces said monitary authorities may opt for a policy mix that’s overweight on fiscal measures plus prudent monetary policies as the extraordinary environment now calls for extraordinary measures.

Michael Ricafort, chief economist at Yuchegco-led Rizal Commercial Banking

Corp. (RCBC), said the BSP and other central banks around the world are expected to follow the US Fed decision.

“The US Fed cut increased market expectations that the BSP could have greater leeway or flexibility to make any further cut of at least 25 basis points on local policy rates as early as this month,” Ricafort said.

Standard Chartered Bank economist for Asia Chidu Narayanan said the BSP is likely to slash interest rates by another 25 basis point in May as inflation likely accelerated to 3.1 percent in February from 2.9 percent in January.

Narayanan said the central bank is also expected to further lower the RRR by another 100 basis points this year.