English
Philippines: BSP likely to resume rate cuts in H2 – Capital Economics
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may resume easing interest rates by the second half of the year once inflation tapers off, according to Capital Economics.
In its weekly brief, the London-based think tank maintained that rate cuts are unlikely in the near term as inflation remains high.
This means that the BSP will keep key interest rates unchanged as it assesses its monetary policy stance on March 25, Thursday.
“But provided the recent rise in inflation proves temporary, as we and the central bank expect, then the door could be open for further easing later in the year,” Capital Economics said.
“We are sticking with our view that the BSP will cut interest rates by a further 50 basis points in the second half of the year once inflation starts to fall back. The consensus is for rates to remain on hold throughout 2021,” it said.
Capital Economics sees the BSP cutting interest rates by 25 bps in the third quarter and another 25 bps before the end of the year. This would bring the key interest rate down to 1.5 percent by yearend.
The central bank last cut the main policy rate by 50 bps in November 2020.
The BSP has emerged as one of the most aggressive central banks in the world after cutting interest rates by 200 bps to an all-time low of two percent and lowering the reserve requirement ratios of banks.
Inflation quickened for the fifth straight month in February to a new two-year high of 4.7 percent as prices of meat and oil products continue to rise.
“The economy remains in need of more support. A surge in new virus cases will hold back the recovery. Fiscal policy is not providing much of a boost,” Capital Economics said.
“Overall, we think that GDP growth will slow sharply in the first half of the year. The unemployment rate – which the central bank has indicated it will keep a close eye on – is likely to remain stubbornly high,” it said.
Source: https://www.philstar.com/business/2021/03/22/2085989/bsp-likely-resume-rate-cuts-h2-capital-economics