BSP rate cut today; stay short EUR vs SGD


BSP to deliver a rate cut and leave the door open for more. EUR to keep weakening against SGD after breaking key support at 1.52.
Masyita Crystallin, Philip Wee26 Sep 2019
    Photo credit: AFP Photo


    Philippines: Another 25bps cut from BSP likely today

    Policy mix to support growth is needed to achieve government’s full year target of 6-7%. Despite two rate cuts so far this year, banks’ credit continued to ease (10.7% in Jul19 from 14.5% in Jan19) and money supply remain weak (M3 grew at 6.7% in July from 7.9% in January). Industrial production growth is still in negative territory.

    Against this background, we expect BSP to cut rates by 25bps today. We see room for further easing especially if growth fails to pick up. The cumulative 50 bps easing this year has only partially unwound the 175bps increase carried out last year.

    FX: Stay short EUR vs SGD

    The euro has lost ground against the Singapore dollar. The pivotal support at 1.52 for EURSGD is now likely to be its key resistance. The door is now open for EURSGD to fall towards its 1.484 low seen in April 2017. The slight easing in the SGD policy that we expect around mid-October is nowhere as dovish as the easing measures announced by the European Central Bank on September 12. In fact, we reckon the SGD nominal effective exchange rate (NEER) policy band will still be on an appreciation path, only milder at 0.5% a year instead of the present 1% pace. The monetary policy divergence between Singapore and the Eurozone is best reflected by their wide yield differential e.g. 228 bps for 10Y bonds.
     
    Conversely, the ECB has not only driven its deposit facility rate deeper into negative territory by 10 bps to -0.50%, it is set to relaunch its quantitative easing programme, without an end-date at a monthly pace of EUR20bn, from November 1. Worse, these decisions have divided the ECB. Nine out of the 25 governing council members have opposed these measures during the meeting. At its highest echelon, one of the six executive board members, Sabine Lautenschläger, has just resigned in protest of the latest measures.

    Masyita Crystallin, Ph.D.

    Economist – Indonesia & Philippines
    masyita@dbs.com
     

    Philip Wee

    FX Strategist - G3 & Asia
    philipwee@dbs.com

    The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.

    PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No. 09.03.1.64.96422.