Philippine Central Bank Holds Rate With Easing Seen in 2020
(Bloomberg) -- The Philippine central bank kept its key interest rate unchanged for a second straight meeting Thursday, with economists predicting more easing next year as risks to economic growth mount and inflation stays subdued.
Bangko Sentral ng Pilipinas left its benchmark rate at 4% on Thursday, as forecast by all but one of the 23 economists surveyed by Bloomberg. The central bank has cut rates by 75 basis points this year, unwinding part of last year’s 175 basis points of tightening.
Growth rebounded to 6.2% in the third quarter, though the outlook remains uncertain given global risks from trade tensions to weakening investment across developing Asia. Governor Benjamin Diokno has said growth for the full year will probably come in at the low end of the government’s 6%-6.5% target range.
Bangko Sentral “pauses to close out the year but we expect the self-professed pro-growth governor to resume rate cuts in February 2020, given the benign inflation path and the need to support growth to chase the higher growth target,” said Nicholas Mapa, senior economist at ING Groep NV in Manila.
Briefing reporters after the decision, Diokno said firm domestic demand, increased fiscal spending and improved liquidity following recent monetary easing keep the economy’s prospects robust. Dennis Lapid, the BSP’s director of economic research, told reporters that data from October and November suggest growth is accelerating in the final quarter of the year.
What Bloomberg’s Economists Say
Increased fiscal spending should help bolster growth, but more support may be needed to meet the government’s 6.5-7.5% growth target for 2020. We forecast 6.4% growth for next year. Our baseline scenario is that the central bank will resume easing as soon as 1Q 2020.
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Justin Jimenez, Asia economist
Inflation picked up last month but generally remains subdued, giving policy makers room to resume rate cuts in the future. The central bank left its inflation forecasts unchanged at 2.4% for this year and 2.9% for 2020 and 2021.
The Fed’s signal Wednesday that it will keep U.S. rates on hold through 2020 “is good news for us,” said BSP Assistant Governor Iluminada Sicat. “It will allow us greater flexibility in terms of setting our policy rate.”
Alex Holmes, an economist with Capital Economics in Singapore, said the economy would likely fall short of the government’s 6.5%-7.5% target for 2020.
“With growth set to disappoint and inflation likely to remain below the mid-point of the BSP’s target, we expect more easing next year,” he wrote in reaction to the decision. “Barring a sudden change in sentiment, we will be sticking with our forecast that the central bank will cut rates by 50 basis points next year.”
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