Philippine central bank keeps overnight RRP on hold at 4.75 pct, likely to be cut by 75 bps by end-2019

The Philippine central bank kept its overnight RRP on hold at 4.75 percent, as was expected. Prevailing monetary settings were characterised as appropriate. The BSP has further lowered its inflation forecast for 2019. The overall interest rate corridor was also kept unchanged.

The BSP downwardly revised the CPI forecast to 3 percent and follows a reduction in the February meeting to 3.1 percent from 3.2 percent in December. The risks to 2019 inflation were viewed to be balanced. The 2020 forecast was modestly raised to 3 percent from 2.98 percent, with risks biased to the downside.

In all, it is believed that the BSP is progressively becoming comfortable with the evolving inflation scenario, noted ANZ in a research report. Meanwhile, the domestic activity was seen to be strong although delays in the passage of the 2019 budget could become a constraint.

“Our view is that the ongoing correction in inflation has opened the door to an easing cycle. We expect the first rate cut of 25bps will be delivered at the May meeting when headline inflation would have moved closer to the mid-point of the central bank’s target range of 2-4 percent. We are forecasting a total of 75bps of rate cuts this year, taking the overnight RRP rate to 4.00 percent by the end of the year”, added ANZ.

During a post-meeting conference, the Philippine central bank officials also repeated their intention to reduce the reserve requirement ratio as part of a wider objective of moving away from the use of blunt instruments of monetary management. Meanwhile, it was underlined that an RRR adjustment is a procedural issue, but one that is a live issue and always on the table. At least 200 basis points of RRR cuts are expected in 2019, said ANZ.