Philippines: BSP to begin rate-cutting cycle in May – Standard Chartered

Chidu Narayanan, economist at Standard Chartered, suggests that they are expecting Bangko Sentral ng Pilipinas (BSP) to begin its rate-cutting cycle with a 25bps cut when it meets on 9 May.

Key Quotes

“The decision is likely to be a close call. Markets have moved to our (then) non-consensus call from Q1-2019 (see Philippines – Lower inflation to lead to rate cuts), with Bloomberg consensus expecting a 25bps rate cut.”

“The combination of falling inflation and slowing growth is likely to lead BSP to start unwinding part of the 175bps of rate hikes from 2018. We see a total 100bps of rate cuts this year, taking the policy cash rate to 3.75 by year-end.”

“Inflation likely dropped to 2.9% y/y in April, falling for the first time in 16 months below the midpoint of BSP’s 2-4% target. We expect inflation to fall further in 2019, below 2% in Q3 and averaging 2.7% in 2019.”

“Q1 growth (data due on 9 May ahead of BSP’s meeting) likely fell to 6%, weighed down by slowing consumption and falling infrastructure expenditure. In addition, the budget impasse in Q1 may have shaved 0.3-0.5ppt off growth.”

“We expect 200bps of RRR cuts in addition to 100bps of policy rate cuts this year.”