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Philippines: ‘No more BSP rate adjustments this year’
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may hold off any interest rate adjustments until next year as previous aggressive cuts to soften the impact of the pandemic have yet to be absorbed by the economy, economists said.
ING Bank Manila senior economist Nicholas Mapa said the BSP is not likely to adjust its policy rates anytime soon as inflation remained subdued despite an uptick to 2.5 percent in October from a four-month low of 2.3 percent in September.
He said the BSP has indicated it may keep its policy rates untouched over the course of the next two quarters, with real policy rates now at negative 0.25 percent, after rolling out a series of aggressive rate cuts that brought the benchmark rate to an all-time low of 2.25 percent.
BSP Governor Benjamin Diokno said the balance of risks remains on the downside due largely to the impact of possible deeper economic disruptions caused by the COVID-19 pandemic.
“The Monetary Board will consider the latest inflation number together with the 2020 third quarter gross domestic product data in its assessment of the outlook for the monetary policy meeting on Nov. 19,” he said.
Inflation averaged 2.5 percent from January to October this year, well within the two to four percent target set by the BSP.
“Diokno did note that he would take the latest inflation reading and next week’s third quarter GDP report into consideration at their next policy meeting, but we forecast a pause from BSP well into 2021,” Mapa said.
He said ING expects inflation to average 2.4 percent this year, similar to last year’s level, as anemic domestic demand may keep prices steady.
Mapa said depressed economic conditions would likely keep inflation at the lower end of the BSP’s two to four percent target range for the rest of the year.
The BSP lowered its inflation forecasts for 2020 to 2.3 percent.
ANZ Research economist Kanika Bhatnagar said the uptick in October inflation was a one-time event caused by the rise in food prices and would moderate over the next few months.
“We continue to expect overall price pressures to remain mild and not present any challenge to the current monetary policy stance,” she said.
Bhatnagar said the benign inflation outlook provides sufficient space for the BSP to maintain an accommodative monetary policy stance.
Source: https://www.philstar.com/business/2020/11/06/2054824/no-more-bsp-rate-adjustments-year