BSP keeps rates steady

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    DIOKNO
    DIOKNO

    The Bangko Sentral ng Pilipinas (BSP) kept its key policy rate steady for a second straight meeting yesterday, giving earlier rate cuts time to take effect as the economy is buffeted by the Sino-US trade war and slower global demand.

    The Southeast Asian country is one of the fastest growing in Asia, but rising uncertainties, including a slowdown in global tech demand, are risks to the country’s growth outlook.

    The BSP left the rate on its overnight reverse repurchase facility at 4 percent, hours after the US Federal Reserve kept rates unchanged.

    It has cut the rate three times since May, reversing some of last year’s policy tightening, to support slowing economic growth.

    But since the outlook has improved on the back of higher government spending and strong domestic demand, BSP Governor Benjamin Diokno said the central bank could afford to leave the policy rate unchanged at 4 percent.

    “Sustained policy support from increased fiscal spending, as well as improved domestic liquidity conditions owing to recent monetary adjustments, is also expected to support growth in the coming months,” Diokno told a news conference.

    Some economists expect the central bank to resume easing next year via policy rate cuts or a reduction in the amount of cash banks must hold as reserves.

    The central bank will also monitor price trends, after inflation quickened for the first time in six months in November to 1.3 percent, bringing the average year-to-date rate to 2.5 percent, well inside the central bank’s 2 percent-4 percent target range.

    This year’s inflation estimate of 2.4 percent and the 2.9 percent price projections for 2020 and 2021 were kept to reflect upside and downside risks from volatility in global oil prices, African Swine fever outbreak and uncertainty over trade policies.

    Analysts expect 2020 inflation will be higher than this year but to remain within the central bank’s comfort range, affording the BSP room to loosen policy further if needed.

    Iluminada Sicat, head of the central bank’s monetary and economic sector, said the Fed’s decision is “good news” for the policymakers as it gives them “greater flexibility” in setting the direction of policy.

    Sicat, however, said the central bank’s future policy decisions will remain data-dependent.

    On Wednesday, the government lowered its medium-term growth targets, citing the ongoing trade war as among risks to the economic outlook, but the projected pace was enough to keep the Philippines among the fastest-growing economies in Asia.

    It trimmed this year’s growth target to 6 percent-6.5 percent from 6 percent-7 percent. It also lowered its growth goals for 2021 and 2022 to 6.5 percent-7.5 percent from 7 percent-8 percent, but kept the 2020 target at 6.5 percent-7.5 percent.

    Some economists have penciled in at least one rate cut next year, after a total of 75 bps of rate cuts this year.

    The central bank reduced the reserve requirement ratio by 400 bps to 14 percent this year, consistent with its medium-term plan to bring it to single-digit levels, and more could be expected according to a note from Nomura.

    A rebound in Philippine economic growth was also expected to be sustained on higher government spending with fourth quarter GDP likely to be between 6.4 percent-6.5 percent, Diokno has said, faster than the previous quarter’s 6.2 percent. – Reuters