The Philippine central bank kept the key rate on hold. The BSP kept its Overnight Repurchase Rate unchanged at 4 percent. The central bank also hinted that it will stay on hold during the December meeting.
The BSP, on the domestic front, maintained that, “firm domestic spending and sustained progress on policy reforms will serve as a buffer against global headwinds.” The upside surprise to growth in the third quarter due to a recovery in investment activity and a pick up private consumption enable the BSP to pause on further easing.
The resurgence in government spending in September was accompanied by a modest rebound in capital imports in the quarter. If the spending resurgence is sustained, investment activity is likely to strengthen further, said ANZ in a research report.
“Reflecting this, our forecast for 2020 growth currently stands at 6.2 percent y/y”, stated ANZ.
The BSP cut its inflation forecast for 2019 to 2.4 percent from 2.5 percent, while maintaining its 2020 and 2021 forecast at 2.9 percent. The favourable inflation environment gives sufficient room for the BSP to resume easing in 2020 should growth pressures renew.
“Based on the current mix of recovering but still-sub potential growth and low inflation we expect another 50bps (cumulative) in rate cuts in 2020. However, the BSP provided no indication on the length of its ‘prudent pause’ in its statement. Sustained weakness in lending activity in the coming months may prompt the BSP to resume easing as early as Q1 2020”, added ANZ.
