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Philippines: BSP seen keeping rates on hold
MANILA, Philippines — Economists expect the Bangko Sentral ng Pilipinas (BSP) to keep interest rates on hold this week as part of the regulator’s commitment to maintain an accommodative monetary policy stance until the economy fully recovers from the impact of the pandemic.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the Monetary Board is likely to keep the benchmark policy rate unchanged at a record low of two percent on Thursday.
“The continuation of accommodative monetary policy is also a major pillar for the country’s economic recovery program from COVID-19, as this helps in keeping borrowing costs relatively lower, spurs greater demand for loans or credit that, in turn, helps in stimulating or encouraging more investments, as well as the creation of more jobs and more economic activities,” Ricafort said.
Ricafort said an accommodative monetary policy would still do more of the heavy lifting for the economy in view of the lack of funds for any additional stimulus measures, as well as the constraints presented by the wider budget deficit and overall debt levels in recent months.
Ricafort said the still relatively elevated inflation of 4.6 percent in BSP…
October and the 7.1 percent gross domestic product (GDP) growth in the third quarter would prevent further easing of monetary policy.
Inflation averaged 4.5 percent from January to October, exceeding the upper end of the two to four percent target set by the BSP due to supply shocks.
Due the stronger-than-expected GDP growth in the third quarter, GDP expansion averaged 4.9 percent from January to September, also near the upper end of the revised four to five percent target set by the Development Budget Coordination Committee (DBCC).
“These would prevent further easing of monetary policy, at the very least, but would still somewhat justify keeping the key local policy rate at the record low of two percent for as long as necessary in view of the need to continuously ensure and sustain the country’s economic recovery from the COVID-19 pandemic after recent lockdowns,” Ricafort said.
For the coming months, especially in 2022, Ricafort said the local policy rate would be a function of any possible hike in the US Federal Reserve funds rate from the current record low of zero to 0.25 percent.
The US central bank already announced the start of its tapering of bond purchases until the middle of next year.
Philippine National Bank economist Alvin Arogo said the BSP continues to recognize that the high inflation is mainly supply side driven and that the country’s economic recovery is uncertain.
Arogo said the Monetary Board would likely keep the stance of keeping the reverse repurchase rate steady at a record low of two percent in the near term.
He said the country’s output level is roughly six percent below the pre-pandemic levels as of September.
Arogo also said the BSP would likely raise interest rates by 25 basis points at the end of the third quarter next year.
ING Bank Manila senior economist Nicholas Mapa said BSP Governor Benjamin Diokno has reiterated his pledge to support the ongoing recovery efforts despite the better- than- expected GDP growth in the third quarter of the year.
“The third quarter growth was largely bolstered by base effects and well need to see more evidence that the economy is on solid footing,” Mapa said.
The Philippines exited the pandemic-induced recession that stretched five quarter as the GDP grew by 12 percent in the second quarter from a contraction of 3.9 percent in the first quarter.
For his part, Security Bank chief economist Robert Dan Roces said the Monetary Board is seen keeping interest rates at record lows on Thursday.
“BSP has reemphasized how supporting a nascent recovery is important and thus the need to remain accommodative. We share that view,” Roces said.
Source: https://www.philstar.com/business/2021/11/15/2141276/bsp-seen-keeping-rates-hold