BSP keeps powder dry, holds policy rate at 4.5%

In the wake of recent double-barreled easing, the Philippines central bank opted to keep the powder dry today as they look to gauge the impact of their recent policy moves.

Although Governor Benjamin Diokno pledged to slash borrowing costs further in 2019, the central bank chief also indicated that all moves would be data dependent. With the Federal Reserve in holding pattern overnight, the central bank decided to wait for further validation on its inflation path and more evidence of the fallout from the global trade war and finally how 2Q GDP growth stacks up.

BSP’s main task of keeping inflation in check is ultimately to provide an environment to help spur economic growth. 1Q GDP’s stumble appears to have caught the attention of the central bank as the BSP opted to slash rates by 25 bps given that inflation had fallen rather quickly from its peak in September 2018.

The next policy meeting (8 August) coincides with the release of 2Q GDP growth, which should by all indications be an improvement from the 1Q print with the economy benefiting from the recent round of policy easing (RRP and RRR cuts) with the fiscal support also seen to boost growth momentum after being sidelined for most of the year.