ING Bank expects BSP to trim rates next week

Dutch financial giant ING Bank expects the Bangko Sentral ng Pilipinas to extend its easing cycle with another 25-basis-point cut in policy rates to 4 percent next week amid the deceleration in inflation rate.

“Latest data from the Philippines shows a sharp slide in consumer price inflation in August below the central bank’s 2 to 4 percent policy target which set another 25bp rate cut in stone—the third this year taking the BSP’s overnight borrowing rate to 4.00 percent,” Prakash Sakpal, ING Bank economist for Asia, said in a report Friday.

“This is one of the two Asian central banks [the other being Bank Indonesia] enjoying significant policy space from 175bp of rate hikes last year,” Sakpal said.

Sakpal does not not think the BSP will to “use up all that policy leeway going forward unless pent-up government spending fails to revive GDP growth above 6 percent in the second half of 2019.”

The gross domestic product growth averaged 5.5 percent in the first half, following a four-year low growth of 5.5 percent in the second quarter, slower than 5.6 percent a quarter ago. Economists said blamed the slowdown to the delayed approval of the national budget for 2019.

President Rodrigo Duterte signed the P3.7-trillion national budget for 2019  only in April after months of impasse between the two houses of Congress.

The Monetary Board, the policy-making body of Bangko Sentral, is scheduled to hold its next meeting on Sept. 26.

Earlier this week, BSP Governor Benjamin Diokno said the timetable for the reduction in policy rates remained despite the recent attacks in Saudi Arabia’s oil facilities which many say could impact on the domestic economy and trigger inflation pressures.

“As long as the oil prices don’t exceed $85 per barrel, we are still within our inflation target [of 2 to 4 percent],” Diokno recently said at the sidelines of an event held at Bonifacio Global City in Taguig.

Global oil prices fell on Tuesday, following Monday’s increase after the drone attacks on Saudi oil facilities. Oil prices retreated after the Saudi energy minister said the kingdom’s oil supply would soon be back online.

Brent crude futures, the international benchmark, declined 6.55 percent or $4.52, to $64.46 per barrel. The contract increased as much as 19.5 percent on Monday to $71.95 per barrel, the biggest rise in history after a series of attacks on Saudi’s facilities that disrupted its production.

Diokno said the BSP was closely monitoring the global and domestic markets’ response to the developments in Saudi Arabia.

The Monetary Board on Aug. 8 cut the overnight borrowing rate by 25 basis points to 4.25 percent, taking into account mainly the continued downward trajectory of inflation rate. The interest rates on the overnight deposit and lending facilities were reduced to 3.75 percent and 4.75 percent, respectively.