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Philippines: ‘BSP to keep rates steady’
MANILA, Philippines — Amid limited options, the Bangko Sentral ng Pilipinas (BSP) is left with no choice but to keep interest rates steady on Thursday, according to Moody’s Analytics.
In its latest Asia Pacific economic preview, Moody’s Analytics said the Monetary Board would likely keep the benchmark interest rates unchanged at an all-time low of two percent during its first rate-setting meeting for the year scheduled on Feb. 11.
“The domestic health crisis has worsened since then as have parameters of consumer and business activity, but with rate cuts of 200 basis points and a liquidity injection already delivered, the central bank has limited options but to wait for the returns from expansionary monetary policy to materialize in 2021 once local restrictions are fully relaxed,” Moody’s Analytics said.
The research arm of the Moody’s Group said the BSP emerged as one of the most aggressive central banks in the world, slashing interest rates by 200 basis points and lowering the reserve requirement ratios for banks to soften the blow of the pandemic on the economy.
The Philippines slipped into a pandemic-induced recession with a record gross domestic product contraction of 9.5 percent in 2020.
Aside from slashing interest rates and lowering the RRR, the BSP also entered into a reverse repurchase agreement with the Bureau of the Treasury, extended a P540-billion provisional advance to the national government, purchased government securities in the secondary market, among others. These actions have unleashed P2 trillion into the financial system to help boost economic activity.
Despite the massive cuts in interest rates, lending contracted by 0.7 percent in December, the first time in more than 14 years as banks remained wary of the borrowers’ capacity to pay due to the impact of the pandemic.
Furthermore, inflation quickened to a two-year high of 4.2 percent in January from 3.5 percent in December last year and breached the upper end of the BSP’s two to four percent target.
Source: https://www.philstar.com/business/2021/02/09/2076255/bsp-keep-rates-steady