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BSP expected to slash benchmark rates tomorrow

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The Bangko Sentral ng Pilipnas (BSP) is expected to cut benchmark rates for the second meeting in a row tomorrow, though a Reuters poll suggested it would be a close call as policymakers try to strike a balance between supporting growth and curbing inflation pressures.

Six of the 11 economists in the poll expect the central bank to deliver a back-to-back quarter-point policy rate cut to 4.25% this week, betting inflation would resume its easing trend following an uptick in May. The rest predicted no change.

“We don’t think May’s rise in inflation will worry the central bank and (we) expect it to press ahead with another 25 basis point rate cut at its meeting on Thursday”, said Alex Holmes, economist at Capital Economics.

The Philippines’ consumer price index in May rose 3.2% from a year earlier, driven by rises in food and utility costs, advancing from 3.0% in April, which was a 16-month low.

Inflation has been running within the central bank’s 2%-4% percent target range since February and it is expected to be around the bottom end of that band in the third quarter, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno has said.

The central bank started to reverse its rate hikes, which totalled 175 basis points last year, in May when it cut its main rate by 25 basis points for the first time since 2012 as economic growth slumped to its slowest pace in four years in the first quarter.

It also announced a phased reduction in the reserve requirement ratio by 200 basis points through the third quarter to give the slowing economy a boost.

Major central banks around the world have started to cut rates in the face of rising economic risks as an escalating U.S. China trade standoff pressures global growth and manufacturing output. The U.S. Federal Reserve, which is expected to hold policy steady at the conclusion of its two-day policy review on Wednesday, has also hinted at the possibility rate cuts in coming months. (Reuters)

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