BSP targets 50 bps rate cut in 2020

Published January 30, 2020, 12:00 AM

by manilabulletin_admin


Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the Taal Volcano eruption will only have a small and temporary impact on inflation and he still thinks a 50 basis points (bps) benchmark rate cut is on the table for this year.

“We can expect a slight uptick in commodity prices in the first quarter 2020 but the impact is likely temporary and will dissipate as the situation stabilizes,” said Diokno on Thursday. The affected commodities include coffee, cacao, pineapple, assorted fruits and vegetables, rice, coconut and fish.

He also said that the economic impact in the nearby areas of Taal Volcano will be “limited in scale” based on the BSP’s preliminary estimates.

The foregone income, for example, is about ₱4.3 billion-₱6.7 billion or less than one percent of Calabarzon output in 2018 in terms of GDP impact. The foregone calculations also depend on distance if it is within a 14-km radius or 17-km radius.

As for property prices, Diokno said there is a negative impact on property valuations in nearby towns. “Overall impact on property prices will also be driven by possible effect of increased demand for properties elsewhere (and that) market sentiment will be driven by the severity and duration of the eruption,” he said.

“(But) this only paints a partial picture as our estimates will not yet include the damage to infra as well as to other public and private assets,” Diokno added.

“The impact of the eruption could result in a slightly lower growth of (affected) regions for the first quarter of 2020 (and) while we do not expect this to substantially dampen overall growth prospects for 2020, we are mindful that the threat of a more dangerous eruption has not fully dissipated. The calamity could exert some upside pressure on inflation because of the impact of the eruption on the supply of food items,” he explained.

Diokno said for 2020, he’s still amenable to at least a 50 bps interest rate cut, factoring in the Taal Volcano eruption and other issues which may affect growth, such as the impact of the Wuhan coronavirus on tourism.

“Still 50 bps (interest rates cut) for 2020,” said Diokno.

Diokno reiterated that since in 2018, the Monetary Board raised the policy rates by 175 bps to combat inflation at the time and also because the US Federal Reserve was also expected to increase rates – with just a 75 bps reduction in 2019 the BSP still has room for a further cut.

“We have time to unwind it (we) only cut it by 75 bps (in 2019) so we still have a long way to unwind,” the BSP chief said.

The BSP’s next policy meeting is February 6 and the market expects the first of a rate reduction for 2020.

“At this time, the BSP staff are preparing their projection in time for the meeting of the Monetary Board on the monetary policy stance next week. Until then, we will continue to monitor the situation for other possible risks to the outlook for inflation and growth,” said Diokno.