BSP rate cut today; stay short EUR vs SGD
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.
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