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Philippines seen last to adjust rates in ASEAN
MANILA, Philippines — After leaving interest rates unchanged at all-time lows, the Bangko Sentral ng Pilipinas (BSP) is expected to be one of the last central banks in the ASEAN to adjust its interest rates.
UK-based Pantheon Macroeconomics said the BSP is likely to be one of the last central banks in ASEAN to start normalizing policy considering the state of COVID-19 in the country.
“This as the Philippines probably will achieve herd immunity later than most. Encouragingly, the rate of vaccination has picked up in recent weeks,” Pantheon senior Asia economist Miguel Chanco said.
“But the campaign will eventually hit a brick wall, as vaccine hesitancy in the country remains one of the highest in the region, if not globally. All told, expect the overnight reverse repo rate to remain at two percent until the end of next year,” he said.
As expected, the BSP on Thursday kept rates at all-time lows as it remains vigilant against risks to the outlook for inflation and growth.
Headline inflation remains above the BSP’s two to four percent target and the economy has yet to fully take off in its path toward recovery given that COVID-19 case counts and positivity rates are still high.
Chanco argued that the BSP seemingly is turning a blind eye to the lagged impact of rising global energy prices, particularly on utilities inflation.
While Pantheon does not see any movement in interest rates in the near term, London-based Capital Economics is expecting otherwise.
In its latest economics update, the think tank said rate cuts are likely to happen in the second half.
“We are sticking with our view that the BSP will cut rates by a further 50 basis points in the second half of the year, with the first in September,” economist Alex Holmes said.
“An effective vaccine rollout offers a way out of the crisis. But progress has been slow. Social distancing looks set to remain a drag on the economy throughout 2021 and beyond,” he said.
The BSP has been keeping interest rates at record lows for the past six months as it aids the economy to recover following a record 9.6 economic slump, the worst in several decades.
It was in November 2020 when the BSP last adjusted interest rates with a surprise 25-basis-point rate cut.
Source: https://www.philstar.com/business/2021/06/27/2108311/philippines-seen-last-adjust-rates-asean