The Bangko Sentral ng Pilipinas (BSP) is expected to deliver a quarter-point interest rate cut next month, but an economist warned the move would not restore lost government credibility or offset the impact of corruption amid expectations of further economic slowdown.

Union Bank of the Philippines Economist Carlo Asuncion said he anticipates the central bank will cut the key rate by 25 basis points at its final Monetary Board meeting this year, though he argues a sudden easing will fail to restore eroded trust in the government.

“Markets recognize that monetary policy is not at the root of the macroeconomic challenge, and a knee-jerk rate cut will not restore lost government credibility,” Asuncion in a LinkedIn report published last Friday, Nov. 14.

“BSP easing cannot address or offset the impact of blatant government corruption, which has already resulted in a cutback in infrastructure spending during the third quarter,” Asuncion added.

For Asuncion, any reduction in the key interest rate will not achieve the growth impact seen in previous easing cycles.

“Whether it’s a quarter point or a jumbo rate cut, additional monetary stimulus under current conditions is akin to pushing on a string—a scenario where rate or reserve requirement ratio (RRR) cuts fail to deliver the same favorable impact as in previous cycles,” he noted.

Market rumors suggest an off-cycle policy easing could occur soon, following disappointing third-quarter GDP growth. This brought the average expansion to five percent, short of the government’s already downscaled growth goal of 5.5 percent to 6.5 percent.

A reduction is especially anticipated for banks’ reserve requirements, a move that would boost liquidity in the financial system. Doing so, however, could “weigh on the Philippine peso.”

Alleged corruption in infrastructure funds had already dragged down economic growth in previous years, even before its current serious impact.

Finance Secretary Ralph G. Recto earlier stated the country could have grown by six percent had there been no corruption in public funds.

While monetary policy easing is expected to drive economic growth, executing such a move will not salvage the declining economy. The Philippine Statistics Authority (PSA) reported that local output growth accelerated at a 4.5-year low of four percent in the third quarter.

Asuncion believes the policy-setting MB will proceed with reducing the current 4.75 percent key borrowing cost by another 25 bps. If realized, the cumulative reductions in monetary policy would total one percentage point.

Despite the minimal support any easing could provide, Asuncion said it could “still offer relief to risk appetite as the year draws to a close, particularly for local equities.”