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Philippines: BSP likely to slash rates anew – Fitch
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to further slash the benchmark interest rates as central banks in Asia-Pacific are seen keeping a highly accommodative stance to boost the recovery of their respective economies from the pandemic-induced recession, according to global rating agency Fitch Ratings.
In its 2021 outlook titled “Growth to rebound amid risks and lingering rating pressures,” Fitch said there is scope for continued policy support to partially offset risks from a resurgence of COVID-19 cases.
“We expect modest further interest-rate cuts in some economies, including India, Malaysia and the Philippines,” Fitch said.
Where interest rates are near zero as in Australia, Korea and New Zealand, or already negative as in Japan, Fitch said central banks would adopt or expand quantitative easing or other unconventional policies.
The debt watcher said accommodative stances among emerging markets would help foster recoveries and keep borrowing costs low, but also carry risks to policy credibility.
“Monetary policies will remain accommodative, facilitated by the absence of inflationary pressures, easing by global central banks, and rising foreign-reserve buffers,” Fitch said.
The BSP’s Monetary Board has slashed interest rates by 200 basis points, bringing the overnight reverse repurchase rate at an all-time low of two percent, to soften the impact of the COVID-19 pandemic on the economy.
Aside from massive rate cuts, the BSP also reduced the reserve requirement ratio by 200 basis points for big banks and by 100 basis points for mid-sized and small banks, extended a P540 billion provisional advance to the national government, entered into a P300 billion repurchase agreement with the Bureau of the Treasury settled last Sept. 29, remitted P20 billion dividend to the national coffers, purchased government securities in the secondary market, among others.
These COVID-19 response measures unleashed P1.9 trillion into the financial system to keep the economy afloat.
Fitch said asset purchase programs introduced by many central banks would support orderly bond market conditions, even as prospects are improving for capital inflows to the region.
It cited the debt monetization as adopted in Indonesia that has helped reduce the government’s interest burden, but could undermine investor sentiment if repeated.
Fitch said the GDP in Asia-Pacific is seen rebounding with a growth of 6.8 percent next year after contracting by 1.2 percent this year, better than the global growth of 5.3 percent in 2021 after shrinking by 3.9 percent this year.
“The outperformance is due in large part to the region’s relative success in containing the coronavirus, which has set the stage for an early resumption i n economic activity,” it said.
The Cabinet-level Development Budget Coordination Committee (DBCC) sees the gross domestic product (GDP) recovering with a growth of 6.5 to 7.5 percent in 2021 and 8.5 to 10 percent in 2022 after contracting between 8.5 and 9.5 percent this year as the economy stalled after imposing the longest and strictest lockdowns in the world.
Fitch said the Philippines, Indonesia and India have struggled as caseloads have only recently leveled off unlike China, Taiwan, Korea, Japan, Vietnam, Thailand, Australia and New Zealand which have successfully contained COVID-19 through effective testing, tracing and social distancing.
Fitch said recoveries in the Philippines, Bangladesh and Sri Lanka, which rely on remittances, as well as tourism-dependent economies such as Maldives, Thailand and Macau, would be held back.
Source: https://www.philstar.com/business/2020/12/09/2062380/bsp-likely-slash-rates-anew-fitch