BSP may cut rates by another 25 bps

MANILA, Philippines — Although inflation can be expected to remain stable, the Bangko Sentral ng Pilipinas  (BSP) may slash policy rates anew by 25 basis points in the second half to support economic recovery amid the pandemic, according to the investment banking arm of the Metrobank Group.

In its latest Market Call report, First Metro Investment Corp. (FMIC), in collaboration with the University of Asia and the Pacific Capital Markets Research, said recovery may only begin by July when the economy can be expected to run at a faster pace after the easing of community quarantines and dismal activity in the first half as a result of restrictions in mobility.

“While we saw a further 50- basis point policy rate slash on April 17 to bring it to 2.75 percent, we still see a further 25- basis point cut likely in early second half. This means that we expect policy rates to be reduced further to 2.50 percent,” FMIC said.

The BSP slashed interest rates by another 50 basis points during an off-cycle rate-setting meeting in April as it continued to ramp up efforts to cushion the economic impact of the new coronavirus pandemic.

The Monetary Board decided to reduce the overnight reverse repurchase rate to 2.75 percent. The overnight deposit and lending rates were also reduced by 50 basis points to 2.25 percent and 3.25 percent, respectively.

The  monetary policy easing was aimed at mitigating the risk of financial sector volatility in light of unfolding global developments by ensuring adequate domestic liquidity and credit in the financial system.

It would also lower the borrowing costs for affected firms and households.