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Philippines: ‘BSP tools running low as inflation trends up’
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) appears to be running out of ammunition after emerging as one of the most aggressive central banks in countering the impact of the pandemic, according to Moody’s Analytics.
Erik Chiang, an associate economist at Moody’s Analytics, said inflation is now trending closer to the top end of the BSP’s two to four percent target.
“The BSP is likely out of ammunition, with the policy rate at two percent as inflation trends closer to the top end of its two to four percent inflation target,” Chiang said.
The BSP’s Department of Economic Research (DER) said inflation likely accelerated to 3.7 percent in January from a 22-month high of 3.5 percent in December due to higher oil and meat prices as well as more expensive power rates in Meralco-serviced areas.
The upward pressures were partly offset by stable rice prices, lower prices of selected fish and vegetables as well as the continued appreciation of the peso against the dollar.
Based on the assessment of the Monetary Board, inflation may accelerate to 3.2 percent this year before easing to 2.9 percent next year.
The BSP has been doing almost all of the heavy lifting to soften the impact of the pandemic on the economy.
Aside from slashing interest rates by 200 basis points to an all-time low of two percent and lowering the reserve requirement ratio of banks, the central bank also entered into the reverse repurchase agreement with the Bureau of the Treasury, extended a P540 billion provisional advance to the national government, and purchased government securities in the secondary market.
These COVID-19 response measures helped unleash P2 trillion into the financial system to help boost economic activity.
Despite the massive cuts in interest rates, the growth in bank lending slowed to below one percent, hitting 0.3 percent in November last year as banks remained wary of the borrowers’ capacity to pay due to the impact of the COVID-19 pandemic.
The economy contracted by a record 9.5 percent last year, exceeding the previous record of seven percent booked in 1984.
“A recovery hinges on the government’s plan to vaccinate as many as 70 million Filipinos this year, or two-thirds of the population, allowing social distancing restrictions to be lied and tourist arrivals to resume,” it said.
Moody’s Analytics pointed out the Philippines has not yet secured enough vaccines to cover its entire population and faces obstacles such as logistical challenges and growing doubts about vaccine efficacy.
Source: https://www.philstar.com/business/2021/02/02/2074612/bsp-tools-running-low-inflation-trends-up