Philippine central bank cuts Overnight Repurchase Rate by 25 bps to 4 pct

The Philippine central bank, BSP, lowered its Overnight Repurchase Rate by 25 basis points to 4 percent today, as was widely expected. The rates on the corridor were adjusted accordingly. BSP’s views prospects for global economic activity as staying soft “owing mainly to uncertainty over trade policies”.

Meanwhile, on the domestic front, the central bank replaced the previous statement – Outlook for growth remains firm on a “recovery in household spending and accelerated implementation of the government’s infrastructure program’ with a more reserved “Firm domestic spending and progress on policy reforms will serve as a buffer against global headwinds”.

“We recently reduced our growth forecast for 2019 to 5.8 percent y/y (from 6.0 percent) as we remain cautious on the extent of pick up in government spending, capital goods imports and investment. Though the pace of spending picked up in August, it remains below the double-digit growth required to meet the target laid out in the budget”, stated ANZ in a research report.

The Philippine central bank cut its inflation forecast to 2.5 percent for 2019, whereas it maintained its 2020 forecast at 2.9 percent. Risks to the outlook are skewed to the upside in 2020 due to geopolitical risks, impact of the African swine flu and a possible rise in domestic transport fares.

“Currently, we expect another 50bps (cumulative) in cuts in H1 2020.However, the statement provided little indication on the timing of the next cut. Consequently, we cannot rule out another cut at the 14 November meeting, this will likely be made clearer by the Q3 GDP data and the two inflation prints to be released before then. We continue, to expect a 100bp cut before year-end. We note that, bank-lending data show little sign of a pick-up despite the additional liquidity previously released”, added ANZ.