Inflation woes, paired with weaker peso and subsequent rate hikes “hurt” household confidence, said Fitch, resulting to muted loan growth well into 2019.

Fitch Solutions Macro Research forecasts easing monetary policy and rising consumer borrowing to lift the country’s loan growth by 13 percent in 2019 and 15 percent in 2020, higher than initial growth expectations of 11 percent and 12 percent, respectively.

The research arm of the Fitch Group in a report said monetary easing and a rebound in domestic confidence could result to stronger lending for fixed capital investment or big ticket consumer goods in the succeeding quarters.

Last year, the Bangko Sentral ng Pilipinas (BSP) tightened monetary policy by a total 175 basis points (bps) to curb soaring inflation and boost the weakening Philippine peso. Inflation woes, paired with weaker peso and subsequent rate hikes “hurt” household confidence, said Fitch, resulting to muted loan growth well into 2019.

Bank lending in August slowed down to 10.5 percent from 11.1 percent the prior month, July, as loans for production activities register slower growth, according to the BSP.

While it expects a rebound, Fitch said a slower global economic growth serves as a primary downside risk to its forecast, as it could reverse domestic loan demand.

Ongoing trade tensions between the United States and China and softening growth among major global economies in 2020 could lead to lesser demand for Philippine exports, which could then translate to weaker domestic confidence, it said.

Additionally, Fitch sees the BSP maintaining a dovish stance.

“We expect one further 25bps cut in (the first quarter of 2020), which would take the central bank’s key policy rate to 3.75 percent, and further easing of the reserve requirements to boost credit supply,” Fitch’s report stated.

“This informs our view for modest rebound in loan growth, peaking at around 15.0 percent in 2020. We do not currently anticipate the key policy rate to be reduced back to 3.00 percent in 2020, as it was during 2017, with the BSP only opting for aggressive easing in a more pronounced economic growth slowdown.”

Meanwhile, Fitch said that lower inflation, a stabilizing peso as well as an uptick in fiscal expenditures in the second half of the year could boost stronger consumer borrowing, as household consumption loans has already risen to 23 percent in July from the first half average of 14.7 percent. Among the drivers were auto loans reflected in car sales recovering from an industry-wide slump in 2018.

Still, household loans only account for 8.5 percent of banks’ total loan book as of June 2019, and a rebound will heavily depend on bigger borrowing from businesses, Fitch added.

Improved borrowing confidence in key sectors such as services, retail and industry could ultimately lift corporate borrowing, it said, as the sectors combined account for about 80 percent of total loans.