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Philippines: BSP seen keeping rates low
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may keep the benchmark interest rate at an all-time low of two percent on Thursday despite the breach of its two to four percent inflation target in January, according to economists.
ING Bank senior economist Nicholas Mapa said the Monetary Board is likely to keep its key interest rates unchanged during its first rate-setting meeting for the year scheduled on Feb. 11.
“Despite the surge in inflation, we do not expect the BSP to adjust its policy stance at its policy meeting this week given the fragile state of the economy with first quarter GDP expected to remain in contraction,” Mapa said.
Mapa said BSP Governor and Monetary Board chairman Benjamin Diokno would likely look past the inflation breach given that cost side factors were the main driver and after the national government ordered price caps on pork and other meat products, while also increasing pork imports to help augment domestic supply.
“We expect the BSP to refrain from adjusting policy in the near term as Diokno provides monetary support to the economic recovery, with monetary authorities hoping to ride out this latest breach until supply conditions normalize in the coming months,” Mapa said.
For his part, UnionBank chief economist Ruben Carlo Asuncion said he is holding on to what was previously telegraphed by the BSP chief that the central bank would maintain its accommodative stance, at least for the rest of the first half.
“I am expecting the Monetary Board to follow through despite of the uptrend in price levels, which I believe can be addressed through a more stable supply of commodities (meat, vegetables and fruits), especially meat products,” Asuncion said.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said the deeper negative net interest rates caused by the latest spike in inflation largely due to supply-side factors, especially higher prices of food products and transportation, makes further rate cuts challenging and difficult at the moment.
“Continued contraction, although smaller, in GDP data and the risk of the new coronavirus variants/strains that could slow down economic recovery prospects amid the entailing risks of lockdowns and travel restrictions, would still support and justify monetary policy easing measures for now,” Ricafort said.
Ricafort said inflation could further pick up in March and the level could be sustained at four percent in the coming months largely due to much lower base effects.
“Thus, any sustained breach of inflation above the four inflation target in the coming months of 2021 could also limit any further cuts in local policy rates and could even lead to some upward adjustments on the key policy rates,” Ricafort said.
Source: https://www.philstar.com/business/2021/02/08/2076004/bsp-seen-keeping-rates-low