BSP seen cutting rates for 3rd time this year on Thursday

Karen Lema, Reuters

Posted at Sep 23 2019 07:15 PM

MANILA - The Philippine central bank will likely step harder on the gas pedal to support economic growth, with big majority of economists in a Reuters poll predicting a third cut in interest rates this year on Thursday.

Ten out of 11 economists polled expect the central bank to use the room afforded to it by slowing inflation to cut the rate on its overnight reverse repurchase facility by 25 basis points to 4 percent. The other economist forecast no change in rates.

HSBC economist Noelan Arbis said he expects a 25 bps cut on Thursday and another in the first quarter of 2020.

"Leaving the policy rate at around 3.75 percent provides enough real rate buffer," he said in a note. "It also leaves enough policy space to cut rates further in case of an economic slowdown."

Easing inflation has allowed the central bank to reverse some of its policy tightening last year. It trimmed its key rate by a total of 50 basis points in May and August, and the case for a third cut was reinforced after growth slipped to its weakest in 17 quarters in April-June. 

Bangko Sentral ng Pilipinas Governor Benjamin Diokno has prepared the market for more policy easing when he said in August the central bank will make another 25 basis point rate reduction before the end of the year.

While the central bank will consider the impact of oil supply disruptions in Saudi Arabia when it meets on Thursday, Diokno said last week it is the inflation forecast for September that will guide its policy decision. 

The consumer prices index fell to a near three-year low in August, bringing the eight-month average inflation rate to 3 percent, well within the central bank's 2 to 4 percent target for the year. 

Four economists who gave forecasts for the reserve requirement ratio (RRR) said it is possible the central bank would also announce a 1 percentage point cut on Thursday, following the 2 percentage phased reduction from May to July.

After Sept. 26, the central bank has two more policy meetings scheduled for this year.