Philippine central bank cuts interest rate by 25 bps to 4.25 pct, likely to cut further by 25 bps in Q4

The Philippine central bank, BSP, lowered its Overnight Repurchase Rate by 25 basis points to 4.25 percent today, as was widely anticipated. The BSP cited that “prospects for global economic activity are likely to remain weak amid sustained trade tensions among major economies”.

Meanwhile, the central linked the softness in the first half of GDP to the delayed implementation of the 2019 budget. It maintained that prospects for domestic demand are perceived as firm, underpinned by a projected rebound in private consumption and an “accelerated” implementation of the infrastructure program.

“We concur that the trajectory for growth in H2 will likely depend on the pace of government infrastructure spending. Although spending did increase sequentially in Q2, it did not materially filter into investment”, noted ANZ in a research report.

BSP again lowered its inflation forecast for this year to 2.6 percent from 2.7 percent previously and for 2020 to 2.9 percent from 3 percent during today’s meeting. This reduction is highlighted by assumptions of lower average oil prices in 2019. The central bank maintained that risks to 2019 inflation remain widely balanced although the possibility of a prolonged El Niño effect had fallen.

“The BSP has kept the door to further easing open, contingent on a sustained moderation in inflation. The central bank expects inflation to fall in the coming months on a high base effect. We concur. We expect the BSP to cut rates by another 25bps in Q4, likely at the November meeting”, stated ANZ.