The country’s top analysts yesterday said the Bangko Sentral ng Pilipinas (BSP) is likely to follow the Federal Reserve’s action yesterday of reducing its key rate by 50 basis points as emergency response to shield the US economy from the impact of the COVID-19 outbreak.
Jun Neri, Bank of the Philippine Islands (BPI) said “massive surprise cut” was not only notable for being double the usual but also for being initiated in-between the Fed’s periodic meeting.
Robert Dan Roces, Security Bank chief economist, dubbed the move as ill-timed as “it did not prove enough to impress the markets who deemed the Fed’s action as insufficient.”
“The Fed boxed itself into a corner, having limited ammunition with interest rates low,” said Roces.
Both Neri and Roces however said it could also be an indication of the Fed knowing more than what the market is aware of.
“The surprise action may suggest they are in panic mode. Emboldened by the FOMC move, we expect the BSP MB to cut the RRR as early as tomorrow (March 5) and deliver their second rate cut this year on March 19,” said Neri.
Carlo Asuncion, chief economist of Union Bank of the Philippines, said the rate cut nonetheless is a “shot in the arm for global financial markets.”
“The US Fed was expected to have this big move even as other counterparts have chosen to stay on the sides. This strong monetary policy move was meant to support the US economy claiming that the economic outlook has materially changed with the pathogen continuing to spread,” he said.
“For the BSP, this allows more monetary policy space to also support and protect Philippine economic growth and financial market confidence in the next coming weeks and months,” Assuncion added.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., at the same time said this could mean that the BSP has “greater leeway/flexibility to make any further cut of at least 0.25 on local policy rates as early as this month (March 2020).”
“Other central banks around the world, including the BSP, could also cut key short-term interest rates/policy rates after the latest emergency 0.50-Fed rate cut on March 3, 2020 that effectively provided other central banks greater leeway/flexibility to ease monetary policy amid the resulting interest rate differentials that have become more comfortable/wider in favor of the peso interest rates after latest 0.50-Fed rate cut,” he said.
