BSP expected to reduce rates by 50 bps more on Covid-19

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J.P. MORGAN expects the Monetary Board (MB) to cut rates by a further 50 basis points (bps) this year as part of a broader easing trend across Emerging Asia to shield their economies against the negative impact of the coronavirus (Covid-19) outbreak.

“(For the Philippines), we add a 25-bps cut in the benchmark RRP (reverse repurchase) rate at the March 19 Monetary Board meeting, in addition to our forecast for a 25-bps reduction in 2Q20, bringing the policy rate to 3.25% by end-2020,” the investment bank said in a note issued Wednesday.

The bank said other central banks in the region might also follow the 50-bps reduction effected by the Federal Reserve between regular meetings on Tuesday, in a move to shield the US economy from the impact of Covid-19.

Specifically, it said it expects another 10-bps cut from China this month, on top of the 10-bps reduction expected in April as well as 25-bps cut in the third quarter for South Korea and Indonesia, on top of the anticipated 25-bps reduction this month for the former and next month for the latter.

J.P. Morgan added that it expects the central banks of India and Thailand to deliver the projected policy cuts sooner.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno has said that he is “not totally ruling out” an overall reduction of 50-75 bps this year as monetary authorities continue to assess the impact of the outbreak.

The MB trimmed its key policy rates on Feb. 6 by 25 bps, bringing the rate on the central bank’s reverse repurchase, overnight deposit and lending facilities to 3.75%, 3.25% and 4.25%, respectively.

J.P. Morgan said central banks in the region will likely still have room for further easing “even with the revisions in the policy rate path… (as) regional central banks (are) yet to catch up to the level of Fed funds cuts since end-2018.”

“The monetary easing complements the fiscal accommodation that we anticipate will amount to 0.4% pts of GDP (gross domestic product) in EM Asia that comes on the heels of downward growth revisions in China and EM Asia due to Covid-19,” it said.

However, it maintained its 6.2% GDP growth projection for the Philippines while its neighbors received downward revisions, including South Korea and Taiwan, among others, as they are more affected by supply chain delays in China and Hong Kong.

Socioeconomic Planning Secretary Ernesto M. Pernia has quantified the impact of Covid-19 on the economy, especially on travel, tourism and trade sectors, as a one-percentage point reduction in full-year GDP growth, if the virus persists until the end of the year.

The government targets 2020 GDP growth of 6.5-7.5%. — Beatrice M. Laforga