THE BANGKO SENTRAL ng Pilipinas is expected to cut policy rates twice within the next two years. — BW FILE PHOTO

THE PHILIPPINES, together with neighbor Indonesia, may cut benchmark rates twice over the next two years, S&P Global Ratings said.

The credit watcher also said it could take up to 2020 for the Bangko Sentral ng Pilipinas’ recent easing moves to translate into higher lending.

“Credit conditions in the Asia-Pacific (APAC) are likely to remain bumpy for the remainder of the year. Falling interest rates may not be enough to soften the ride amid an economic slowdown in China, geopolitical uncertainty, and diminishing corporate revenue and profit prospects,” S&P said in a report released on Wednesday.

While S&P expects two more rate cuts in the Philippines and Indonesia until 2021, it said other countries in the region — namely Australia, India, Japan, South Korea, Malaysia, and Thailand — will likely slash rates just once in this time period or conclude their easing cycles, the debt watcher said.

The BSP has cut benchmark interest rates by 75 basis points (bp) thus far this year, announcing 25-bp reductions in its May 9, Aug. 8, and Sept. 26 Monetary Board meetings.

This partially dialled back the cumulative 175-bp in rate hikes it implemented in 2018 as inflation quickened to multi-year highs.

“In 2018, inflation spiked due to the incidental confluence of increases in consumption tax, food prices due to typhoons, and oil prices. All this was made even more inflationary by the concurrent global emerging market selloff that pushed the peso weaker,” S&P Global Ratings economist Vince Conti told BusinessWorld in an email.

But with inflation easing for four consecutive months since June, S&P said the BSP has room to ease policy further. Data from the Philippine Statistics Authority (PSA) showed headline inflation stood at 0.9% in September, easing from the previous month’s 1.7% print. This was the slowest rate seen since the 0.7% logged in April 2016.

“This year, almost all these one-off inflationary factors have died out. Inflation is very low, while growth is moderating due to external factors as well as the negative fiscal impulse in the first half of the year from the budget delay,” Mr. Conti said.

“That gives the BSP space to undo the tightening that it had to do last year even as it releases liquidity through RRR cuts, as it shifts its focus from preventing high inflation to supporting growth and preventing inflation from undershooting,” he said.

However, Mr. Conti said the BSP’s easing cycle could begin boosting bank lending only starting next year, as the transmission of policy rate cuts is usually lagged.

“It is important to remember that globally, monetary policy moves can only impact the economy at a lag. So it is no surprise that credit has not yet accelerated despite recent BSP cuts. Last year’s tightening is still working through the economy, while this year’s loosening can only be expected to take effect next year and beyond,” Mr. Conti said.

BSP data showed bank lending continued to ease in August due to slower growth in loans for production activities.

Outstanding loans of universal and commercial banks grew 10.5% year-on-year in August, easing from the 11.1% pace seen in July. Inclusive of reverse repurchase agreements, credit growth in August was at 10% compared to 10.7% in July. — L.W.T. Noble