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Philippines: Policy rates to remain low until late 2021
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may maintain the benchmark interest rate at a record low of 2.25 percent until late next year to allow the economy to recover from the impact of the COVID-19 pandemic, according to Fitch Solutions Country Risk & Industry Research.
In its latest research note titled “Philippine rates to remain on hold,” Fitch Solutions said the Monetary Board would continue to keep interest rates steady amid potential disinflationary pressures from a moderation in global oil prices and peso appreciation.
The BSP kept interest rates unchanged for the second straight month last Oct. 1 as part of a prudent pause to allow previous aggressive monetary actions to work their way through the economy.
“The decision to hold was in line with our view that the BSP will maintain its key policy rate at 2.25 percent through to late 2021, where the next move would be a hike,” it said.
The research arm of the Fitch Group said the decision of the BSP to slash policy rates by a cumulative 175 basis points this year and lower the reserve requirement ratios by 200 basis points for big banks, as well as 100 basis points to mid-sized and small banks have boosted credit conditions and supported financial stability.
The BSP has been doing the heavy lifting to keep the economy afloat, unleashing P1.5 trillion into the financial system through COVID-19 response measures including the P300 billion repurchase agreement with the Bureau of the Treasury, purchase of government securities in the secondary market, temporary suspension of the term deposit facility auction, as well as the reduction of the volume of the overnight reverse repurchase facility, among others.
“Alongside this, several macro-prudential measures have been taken to relax loan repayment rules and capital ratios for banks given the sudden shock from the pandemic,” Fitch Solutions said.
It also said demand for credit is expected to rebound as domestic activity picks up, proving the financial conditions sufficient.
Based on its last assessment, the Monetary Board revised downwards its inflation forecasts to 2.3 percent for this year, 2.6 percent for 2021, and to three percent for 2022 due to potential disruptions to domestic and global economic activity amid the ongoing pandemic.
Inflation averaged 2.5 percent in the first eight months after easing to a three-month low of 2.4 percent in August
“The downside surprise to headline inflation in August and continued strength of the peso has led us to lower our outlook for inflation in 2020. We now expect headline inflation to average 2.5 percent through 2020, from a previous forecast of 2.7 percent while maintaining our forecast for inflation to average three percent in 2021,” it said.
Source: https://www.philstar.com/business/2020/10/06/2047392/policy-rates-remain-low-until-late-2021