THE Bangko Sentral ng Pilipinas (BSP) will likely keep benchmark rates steady at its review this week, with policy makers preferring to ensure that inflation maintains its downward trend, analysts said in a BusinessWorld poll.

Six out of 10 economists polled by BusinessWorld said the BSP is expected to leave rates untouched as its policy-making Monetary Board meets on Thursday, with the rest predicting another 25-basis-point (bp) reduction in benchmark yields.

Analysts’ expectations on monetary policy action

“I don’t see a rate cut for the BSP Monetary Board meeting this month. I think that the anticipated Fed rate cut gives them additional room to wait as markets price these data in,” Sun Life Financial economist Patrick M. Ella said in an e-mail.

Nicholas Antonio T. Mapa, senior economist at ING Bank NV-Manila Branch, said despite BSP Governor Benjamin E. Diokno’s recent rhetoric on further cuts to policy rates and banks’ reserve requirement ratios, the central bank will likely pause to see the effect of recent easing moves and remain data-dependent.

“(The BSP chief) has deemed rate cuts and monetary easing as ‘inevitable’ but he stuck to script by also promising that adjustments would be data-dependent and engineered by evidence. And although we agree that the May upside surprise will likely be a blip in the downward path for inflation, we expect BSP to take stock of the latest data and to also simultaneously gauge the impact of its recent double-barrelled easing (cut to RRP and reduction in RRR),” Mr. Mapa said.

“Governor Diokno has indicated that the BSP was ‘ready to use all appropriate measures needed’ to ensure that they would provide an environment conducive for economic growth but also stressed that price stability will be the primary focus. We believe that the BSP will pause at the June meeting to await further confirmation that inflation will return to its downward path which would further cement their short-term and medium-term inflation targets,” Mr. Mapa added.

Headline inflation stood at 3.2% last month, up from the three percent in April but still slower than the 4.6% recorded in May 2018. The print also fell within the BSP’s 2.8-3.6% inflation estimate range for that month.

Year-to-date, inflation averaged at 3.6%, past the midpoint of the central bank’s 2-4% target range and still above the 2.9% forecast for 2019.

Mr. Diokno earlier said the slight uptick in May inflation “does not constitute a trend,” adding that the central bank is confident that the rise in prices will slow in the third quarter due to base effects, declining world oil prices, and the appreciating peso.

The BSP cut benchmark yields by 25 bps at its May 9 meeting, bringing the interest rate on the central bank’s overnight reverse repurchase facility to 4.5% effective May 10. The rates on the overnight lending and deposit facilities were also reduced accordingly to 5% and 4%, respectively.

The central bank also reduced the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks. The reserve ratios of big banks and thrift lenders will be cut by another 50 bps on June 28 and July 26 to settle at 16% and 6%, respectively.

Robert Dan J. Roces, Security Bank Corp. chief economist, said in an e-mail that the BSP will likely wait for clarity in the US central bank’s policy direction before continuing its easing path.

“The next cut will probably be either July or August…for another 25 bps. The reason is that the BSP, in its data-dependence stance, will want to consider the effects of the first cuts… They will likely ascertain the trajectory of inflation in the coming months prior to making another cut and likely take their cue as well with developments in the US FOMC (Federal Open Market Committee) meetings,” Mr. Roces said.

The US Federal Reserve’s policymaking FOMC is likely to stand pat on policy during its June 18-19 meeting but it still expected to trim its interest rates sometime this year.

Meanwhile, Michael L. Ricafort, Rizal Commercial Banking Corp.’s (RCBC) economics research division head, said he expects a 25-bp cut in policy rates on Thursday as “easing inflation and possibility of Fed rate cuts would justify future cuts in local currency rates now at 4.5%.”

Mr. Ricafort added that a sharp decline in global oil prices and a possible slowdown in global economic growth due to the lingering trade war between United States and China could also trigger a cut in local policy rates. — R.J.N. Ignacio