THE Bangko Sentral ng Pilipinas (BSP) may cut rates anew this week following the move of global central banks to ease policy amid fears of slower economic growth and lower demand for key commodities including oil due to the coronavirus disease 2019 (COVID-19) pandemic.

Twelve out of the thirteen analysts in a BusinessWorld poll held last week expect the Monetary Board (MB) to slash borrowing costs by at least 25 basis points (bps) at their meeting on Thursday, March 19, with some also seeing another 25-bp cut in May.

Policy rate expectations for March 19

The yield on the BSP’s overnight reverse repurchase facility currently stands at 3.75%, while overnight lending and deposit rates are at 4.25% and 3.25%, respectively, following the central bank’s decision to ease borrowing costs by 25 bps at the Feb. 6 policy meeting.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the BSP will go for a 25-bp cut on Thursday amid disruptions due to the month-long lockdown of the National Capitol Region (NCR).

“There are worries of dents to growth that will permeate and that’s mostly from fears of supply chain disruptions, especially with the quarantine of Metro Manila that alone accounts for around 40% of total GDP (gross domestic product),” Mr. Roces said.

After a below-target 5.9% GDP expansion in 2019, the government targets 6.5% to 7.5% economic growth in 2020.

However, the National Economic and Development Authority said earlier this month they expect GDP growth to come in at just 5.5% to 6.5%, as the economy starts feeling the impact of the outbreak, specifically on tourism and trade.

Meanwhile, amid the increasing number of COVID-19 cases in the country, NCR on Sunday began a 30-day “community quarantine” wherein travel by land, domestic air and sea to and from Metro Manila will be banned until April 14.

There were 140 confirmed COVID-19 cases in the Philippines as of March 15, with 11 fatalities recorded.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort, meanwhile, said a rate reduction could be on the table this week following global central banks’ move to ease their policy stance due to the virus.

“Another major factor that supports at least a 25-bp cut in local policy rates is the emergency 50 bp [US] Fed[eral Reserve] rate cut that could still prompt other central banks…to also cut rates as well, as part of the global coordinated measures to shore up confidence on both the global economy and financial markets,” Mr. Ricafort said.

The Fed implemented an off-cycle 50-bp cut on March 3 to cushion the economic impact of the COVID-19 outbreak.

Another rate cut from the Fed at their scheduled March 17-18 meeting may trigger a reduction of up to 50 bps from the side of the BSP, said Noelan Arbis, economist at Hongkong and Shanghai Banking Corp. Global Research.

“I think MB will cut policy rates by 50 bps due to the global spread and severity of COVID-19,” University of Asia & the Pacific (UA&P) economist Victor A. Abola said in an e-mail.

BSP Governor Benjamin E. Diokno earlier said another 25-bp cut will be discussed at the MB’s meeting this week, noting the central bank is not ruling out cuts worth 50-75 bps.

So far, the BSP has already slashed rates by 100 bps since 2019, partially reversing the 175 bps worth of hikes implemented in 2018 to temper rising inflation.

The BSP still has monetary space for further easing should COVID-19’s economic impact worsen, said ANZ Research economist Mustafa Arif.

“Falling US yields, low oil prices and tame domestic inflation give the BSP the space for a deeper easing cycle in the rest of 2020, if required,” he said.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said a reduction in banks’ reserve requirement ratio (RRR) is “more probable on the table.”

But UA&P’s Mr. Abola said the BSP will opt to keep banks’ reserve ratios at their current levels.

“I don’t think they will cut RRR because policy rate cuts will be more effective in lowering interest rates as the BSP is still paying rates for TDF (term deposit facility) higher than T-bill (Treasury bill) yields,” he said.

After 400 bps in reductions last year, the RRR for big banks now stand at 14%, while those of thrift and rural banks are at four percent and three percent, respectively. — L.W.T. Noble