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Philippines: BSP seen keeping record low interest rates
MANILA, Philippines — Economists are not expecting any surprises as the Bangko Sentral ng Pilipinas (BSP) is likely to keep interest rates at record lows to support the economy’s faster recovery from the pandemic-induced recession.
Bansi Madhavani, senior economist at ANZ Research, said the easing inflation reaffirms that the central bank would likely keep an accommodative monetary policy stance.
“We believe the BSP will keep the policy rate unchanged for the remainder of the year,” Madhavani said.
Inflation finally returned within the BSP’s two to four percent target after easing for the second straight month to four percent in July. However, the average for the seven-month period of 4.4 percent was still above the central bank’s target range.
“We expect it to remain within this range in the near term, albeit closer to the upper bound. The key risk to this assessment is a potential hardening of commodity prices, especially crude oil,” Madhavani said.
ING Bank Manila senior economist Nicholas Mapa said the BSP would keep policy rates unchanged for the rest of 2021 and well into 2022 despite possible bouts of faster inflation.
Mapa pointed out that BSP Governor Benjamin Diokno made it clear the central bank would provide support for the fledgling recovery and deliver monetary stimulus for as long as “it is needed.”
“With the economy reeling from the pandemic, we doubt BSP will even consider preemptive recalibration of policy rates as policy tightening at this stage will definitely snuff out whatever momentum is left in the economy’s growth engines,” Mapa said.
UnionBank chief economist Ruben Carlo Asuncion said the Monetary Board is seen keeping interest rates steady anew on its rate-setting meeting scheduled on Aug. 12.
“We’re expecting them to hold until significant and steady economic recovery is actually happening. Until then, BSP will continue to be accommodative,” Asuncion said.
Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp., said the BSP would likely maintain an accommodative monetary policy that supports low interest rates to help stimulate greater demand for loans and boost local and foreign investments in the country.
Ricafort said more accommodative monetary policy measures would also be another major pillar of the country’s economic recovery program as this would help keep interest rates near record lows as long as necessary to spur greater demand for loans and support economic recovery prospects.
Ricafort also said a possible cut in banks’ reserve requirement ratio from the current 12 percent, especially if inflation stabilizes further in the coming months, would free up more liquidity into the financial system.
“(An) accommodative monetary policy would still do more of the heavy lifting for the economy amid the lack of funds for any additional stimulus measures,” he said.
However, Bank of the Philippine Islands lead economist Jun Neri said the Monetary Board could act preemptively by hiking the reverse repurchase rate if inflation remains elevated in August, the government announces a stronger-than-expected gross domestic product growth for the second quarter, and if the US Federal Reserve announces its 2022 plan to reduce asset purchases this September.
“We believe the Monetary Board decision could tilt toward a mild, preemptive increase in the reverse repurchase rate as early as the Sept. 23 meeting,” Neri said.
Source: https://www.philstar.com/business/2021/08/09/2118543/bsp-seen-keeping-record-low-interest-rates