BSP under pressure for deeper rate easing

After the economy grew weaker-than-expected in the third quarter, foreign banking giants intensified expectations for a December policy easing, with HSBC pricing in a “jumbo” interest rate cut due to the infrastructure spending fiasco and insufficient fiscal stimulus.

- BY DERCO ROSAL

HSBC ASEAN Economist Aris Dacanay said in a Nov. 7 commentary that the third-quarter gross domestic product (GDP) expansion reinforced another Bangko Sentral ng Pilipinas (BSP) easing in December after its recent shift to a more dovish stance, due in part to alleged corruption in public infrastructure funds.

Dacanay said the bank believes the most likely scenario is for the BSP to proceed with reducing its key borrowing cost by a quarter of a point, bringing the current 4.75 percent down to 4.5 percent.

However, Dacanay noted that historically, “the fiscal drag can persist for longer than a year,” especially when there are no “immediate policy or institutional reforms” to address public spending issues head-on.