Philippines Rate Expected to Stay Steady as Governor Signals Pause in Cuts

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The Philippine central bank will likely leave its key interest rate unchanged at its policy meeting this week after cutting it three times since May, central bank watchers say.

All 19 economists in a Bloomberg survey predict the Bangko Sentral ng Pilipinas will keep the benchmark rate at 4% on Thursday. It’s the first time since March that economists have unanimously predicted a rate hold.

“Signaling early that the easing cycle on the policy rate is done is highly consistent with growth turning around,” said Euben Paracuelles, an economist at Nomura Holdings Ltd. in Singapore.

Governor Benjamin Diokno said earlier this month that policy easing is finished for the year -- an unusually direct statement for a central banker. He added that Bangko Sentral has done “more than enough” to support the economy, which rebounded to 6.2% in the three months through September from a four-year low a quarter earlier. Inflation cooled to the slowest since April 2016.

“The more transparent communication of the BSP helps investors better manage portfolios,” said Michael Enriquez, chief investment officer at Sun Life of Canada Philippines Inc. “Hopefully it lessens the volatility created by speculation.”

A former budget secretary who became central bank governor in March, Diokno told reporters he doesn’t like rattling financial markets with surprise policy moves. The Philippine peso’s one-month implied volatility is among the lowest in the basket of emerging-market currencies tracked by Bloomberg.

Here’s what to watch for Thursday:

Rate Guidance

After BSP cut the benchmark rate by a total of 75 basis points since May, analysts will look for clues to the timing of further rate action next year.

Since Amando Tetangco held the governor’s post from 2005 to 2017, Bangko Sentral has been among the most predictable central banks, with policy makers signaling their outlook on the key rate sometimes months in advance.

“Diokno began his term indicating that he would like to ‘normalize’ rates after they had been raised to what he termed as ‘crisis level’ rates,” said Nicholas Mapa, an economist at ING Groep NV in Manila, who forecasts that rate cuts will resume as early as next quarter.

Reserves, Inflation

Diokno also has pre-announced reductions to the portion of deposits lenders must hold in reserve. The reserve requirement ratio will be lowered to 14% by December from 18% at the start of May.

“While the guidance has been clear about the direction of travel for the RRR, it has been difficult to forecast it in terms of the exact timing and magnitude of cuts,” Nomura’s Paracuelles said. “This looks to me more like BSP trying to leave some flexibility.”

The central bank, at Thursday’s media briefing on the policy rate, is also expected to give its latest forecasts for annual inflation through 2021, and provide some comments on risks to the outlook.

--With assistance from Tomoko Sato.

To contact the reporter on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold, Clarissa Batino

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