Indonesia, Philippines Set to Cut Rates Anew: Decision Guide
Indonesia, Philippines Set to Ramp Up Rate Cuts: Decision Guide
(Bloomberg) -- Central bankers in Indonesia and the Philippines are likely to cut interest rates for a second time this year, joining colleagues around the globe in boosting efforts to protect their economies from the coronavirus.
As the infection continues its rapid spread across the region, economic growth is taking a knock from trade disruptions, shuttered borders and lockdowns. In Indonesia, Covid-19 cases have jumped and the currency has tumbled, while a quarantine of the main Philippine island of Luzon could weigh heavily on demand.
Both Bank Indonesia and Bangko Sentral ng Pilipinas are expected to lower their benchmark interest rates Thursday, adding to cuts announced by a host of other central banks in recent days. For Indonesia, the growth outlook has deteriorated significantly since policy makers lowered rates last month to 4.75%. In the Philippines, the central bank governor warned of a possible “large and protracted” economic blow and hinted that the Monetary Board would lower rates by 50 basis points.
“Global recession risks have risen,” and the Federal Reserve’s emergency move this week means the chances are “quite high” that Indonesia and the Philippines will also cut, said Sung-Eun Jung, an economist at Oxford Economics Ltd. in Singapore.
In Indonesia, where coronavirus fears are “just starting to kick in,” the economic impact will be felt more in the second quarter, Sung said. For the Philippines, the lockdown of Luzon “is definitely going to have an adverse impact on GDP.”
Read: Asian Central Banks Hit Crisis Mode Amid Fed Emergency Moves (1)
Here’s what to watch for in this week’s decisions:
Indonesia
Bank Indonesia has stepped up market intervention amid a virus-driven selloff that has pushed down the currency more than 10.5% against the dollar in the past month, making it the worst performer in Asia. As the pandemic spreads, the central bank has trimmed its 2020 economic growth forecast to 5%-5.4%, from a previous range of 5.1%-5.5%.
Another rate cut would add to two rounds of fiscal stimulus announced by the government in recent weeks. Of 26 economists surveyed by Bloomberg, 17 predict Bank Indonesia will lower the rate for a second month in a row -- 14 see a 25 basis-point move and three are forecasting 50 basis points. The rest expect no change.
“We believe a coordinated policy response will continue to boost Indonesia’s attractiveness, and the rupiah should be in a position to stage a recovery once the risk-off sentiment retreats,” said Charu Chanana, deputy head of Asia research at Continuum Economics in Singapore.
With the country still at risk for a rise in virus cases, “any large scale lockdowns could impede activity levels,” she said. “We do not see risk of inflationary pressures picking up yet as low oil prices help.”
Consumer prices, which rose 2.98% in February from a year earlier, remain relatively benign.
“This means BI will still cut at the March meeting given the real rate cushion, and we see rising risk of a 50-basis-points rate cut,” Chanana said.
Philippines
All 22 economists surveyed by Bloomberg expect Bangko Sentral to lower its key rate Thursday, with 16 expecting a 50-basis-point cut and the rest expecting 25 basis points.
Governor Benjamin Diokno told Bloomberg TV this week that policy makers are “inclined” to slash the rate by 50 basis points. That would be the biggest reduction since the bank adopted the rate-corridor system in 2016.
President Rodrigo Duterte on Monday ordered a month-long lockdown of Luzon island, which is home to about 60 million people and accounts for more than 70% of the Philippine economy. Mass transport was suspended and people were advised to stay home.
“The situation is still fluid in Manila, but such shutdown and quarantine measures will have a negative impact on sentiment and the job market,” said Angela Hsieh, an economist at Barclays Bank Plc in Singapore, who expects a 50-basis point cut Thursday.
The recent sharp decline in oil prices and the Fed’s easing provide space for the Philippine central bank to cut rates too.
“They really should just act quickly, rather than wait,” Hsieh said.
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