THE COUNTRY’S economic outlook and the peso’s stability will be the key deciding factors for the Bangko Sentral ng Pilipinas (BSP) in further cutting its policy rates and reducing banks’ reserve requirement, think tank Fitch Solutions said in an analysis.
The central bank’s Monetary Board on Thursday cut benchmark interest rates by 25 basis points (bps) in its third policy review for the year, hours after the Philippine Statistics Authority (PSA) reported that the economy grew at the slowest clip in four years last quarter and two days after the PSA said inflation eased to the slowest pace in 16 months in April.
“With trade-related risks still a threat…, the Philippines government and the BSP will look to loosen policy further if growth shows limited signs of recovering,” Fitch Solutions said.
“We at Fitch Solutions will be reviewing our monetary policy forecast over the coming days, following the BSP’s cut. Key to the BSP’s decision to ease further will be the stability of the Philippine peso over the coming months and the outlook for growth,” it added.
Philippine gross domestic product (GDP) grew by 5.6% in the first quarter, its worst performance in four years, the PSA reported on Thursday. The first-quarter outcome was lower than the 6.3% in the preceding quarter and 6.5% in the same period in 2018.
“The slowdown in growth reflects the external headwinds faced by the Philippines economy but also the limited domestic fiscal support and the impact of tighter monetary policy in Q1,” the think tank said.
Fitch Solutions said the economy will likely benefit from stronger government consumption in the coming months following the approval of the 2019 spending plan.
“The BSP may also seek to ease reserve requirements or its policy rate even further, given that inflationary pressures have now receded to within its target band,” it said.
BSP Governor Benjamin E. Diokno said on Thursday the Monetary Board will discuss a potential reserve requirement cut at its weekly meeting next week.
Fitch Solutions sees the economy growing by 6.1% this year, down from the 6.2% print in 2018.
Malacañang on Friday said it expects higher GDP growth in the next quarters despite the 5.6% outcome in the first three months of the year.
“We expect higher growth in the next few quarters as the Build Build Build Infrastructure Program starts to gather steam and domestic consumption, as a result of deflation, starts to pick up,” Presidential Spokesperson Salvador S. Panelo said in a statement on Friday.
“The delay in our infrastructure program because of the budget deadlock during the first quarter is now a thing of the past. Soaring inflation has been decisively addressed. We expect higher growth in the next few quarters as the Build Build Build Infrastructure Program starts to gather steam and domestic consumption, as a result of deflation, starts to pick up,” Mr. Panelo said. — RJNI and ALB