MANILA -- Fitch Solutions still sees the Bangko Sentral ng Pilipinas’ (BSP) overnight reverse repurchase (RRP) rate at 4 percent by end-2019 but is open to the possibility for another cut before yearend due to the trade tensions overseas, among others.
In a report released Friday, the unit of Fitch Group maintained its forecast that Philippine monetary officials will keep the current rates on hold to monitor the impact of the total of 75 basis points cut to date but return to easing mode through another 25 basis points slash next year.
“Nevertheless, we believe there is a high chance the BSP eases further as it focuses on growth and sees scope from investor accommodation to further easing,” it said.
BSP’s policy-making Monetary Board (MB) lowered the central bank’s policy rates by 25 basis points each in May, August and September after noting the sustained deceleration of domestic inflation rate and firm domestic output.
The report noted monetary officials’ statement that they will remain data-dependent vis-à-vis their future decision.
It, on the other hand, cited the “possibility of a further rate cut before year-end as high, with trade tensions unlikely to improve and inflationary base effects to result in subdued Q4 price growth readings.”
“Moreover, a more significant deterioration in economic readings into 2020 could see the BSP completely reverse the 175 bps of hikes in 2018, which would mean an end-2020 policy rate of 3.00 percent, but this is not our core view,” it said.
The report explained that Fitch Solutions believes that BSP officials will take on a wait-and-see stance in its remaining two policy meetings this year.
It also revised downwards its inflation forecast this year to 2.7 percent from three percent and the 2020 figure from 3.3 percent to 3.1 percent on projection for a sustained drop of inflation rate in the coming months.
In the first eight months this year, inflation averaged at three percent, the mid-point of the government’s two to four percent target band until 2021.
Except for the uptick to 3.2 percent last May, from the previous month’s three percent, inflation continued its downtrend after peaking at 6.7 percent in September and October last year.
Last August, inflation decelerated further to 1.7 percent from 2.4 percent in July.
The report said that “as the base effects fade through 2020, the BSP will focus more on the evidence of whether the economy is rebounding in H219 and whether its easing policy is having any impact of domestic credit conditions.
“We hold onto our view the BSP will cut once again in 2020, primarily because we believe external headwinds will not abate, and as such the BSP will feel it necessary to reduce rates further,” it added. (PNA)
