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Philippines Monetary Policy December 2019

Philippines: BSP keeps rates on hold in December

At its 12 December monetary policy meeting, the Central Bank of the Philippines (BSP) left the overnight reverse repurchase facility (RRP) unchanged at 4.00%, as had been expected by our panelists. Accordingly, the overnight deposit facility (ODF) and the overnight lending facility (OLF) rates—which establish the floor and the ceiling of the interest rate corridor—were maintained at 3.50% and 4.50%, respectively. The Bank’s decision follows a total of 75 basis points in rate cuts this year, as the BSP continues to unwind some of last year’s aggressive tightening.

The Bank deemed its current monetary policy stance as appropriate given within-target inflation expectations for 2020 and the favorable outlook for the economy. Inflation rose to 1.3% in November (October: 0.8%), remaining below the Bank’s target range of 3.0% plus or minus 1.0 percentage point. Even so, the Bank sees inflation risks to be skewed to the upside for 2020, owing to the potential impact of tensions in the Middle East on oil prices, as well as poor weather conditions and the outbreak of African swine fever on food prices. Moreover, the Bank assessed the economy to be in good standing, despite ongoing weakness in the global environment, as fiscal stimulus and accommodative monetary conditions should buttress domestic demand.

In its communiqué, the BSP took a wait-and-see approach, as its prior easing continues to take effect. The BSP stated it would continue to monitor inflation and demand conditions and did not specifically allude to plans of additional rate cuts; however, the Bank removed mention of “a prudent pause” and highlighted external headwinds to growth from uncertain global trade policies. The majority of FocusEconomics panelists foresee one more 25 basis-point rate cut in 2020 before the Bank ends its easing cycle.

Explaining ING’s scenario for the monetary policy outlook in 2020, Nicholas Mapa, senior Philippines economist, stated:

“The Philippines is expected to post a relatively disappointing growth print for 2019 given the government budget delay and meltdown in capital formation and we expect this to prompt the self-professed pro-growth Governor to come out with additional easing in 2020. […] we expect the BSP to cut its policy rate by 25 bps as early as the February 2020 meeting and ease by a total of 50 bps next year.”

The next monetary policy meeting is scheduled for 6 February 2020.

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