Thailand
Philippines: BSP to keep rates at record lows for prolonged period
MANILA, Philippines — Economists are now convinced the Bangko Sentral ng Pilipinas (BSP) is likely to keep interest rates at record lows for a prolonged period as part of efforts to help the economy fully recover from the pandemic-induced recession.
HSBC economist Noelan Arbis said the sharp hit to growth expectations this year and next year amid the resurgence of COVID-19 infections would likely prevent the BSP from raising rates in 2022.
“We now expect the BSP to keep its policy rate unchanged throughout 2022, as the economy is likely to remain below its pre-pandemic level until the first half of 2023,” Arbis said.
The British banking giant was expecting three rate hikes or a cumulative of 75 basis points next year.
“The sharp hit to growth expectations this year and next is also likely to prevent the BSP from hiking rates in 2022, contrary to previous expectation of three rate hikes,” Arbis said.
The BSP kept interest rates at record lows for the fifth straight rate-setting meeting last June 24. The last time it slashed interest rates was in November 2020 as part of response measures to cushion the impact of the COVID-19 pandemic on the economy.
“We expect the BSP to keep its policy rate on hold at two this year as policymakers continue to focus on supporting the recovery in light of recent headwinds,” Arbis said.
Economic managers are expecting a slower recovery with a gross domestic product (GDP) growth of six to seven percent this year.
According to HSBC, the BSP is set to further lower the reserve requirement ratio (RRR) by 200 basis points next year as part of the BSP’s commitment to bring down the level to single digit by 2023 from a high of 18 percent a few years ago.
“We expect a 200- basis-point cut in RRR 2022 as loan growth eventually picks up and as the BSP moves toward its objective of reducing the RRR to single-digits by 2023,”Arbis said.
ING Bank senior economist Nicholas Mapa said the BSP is likely to extend its pause after BSP Governor Benjamin Diokno reiterated last Thursday the pledge of monetary authorities to provide policy support to economic recovery for as long as needed as momentum is still weighed down by relatively high COVID-19 infections.
“With price pressures fading and inflation set to slide back within target in the coming months, we expect the BSP to extend its pause for the balance of the year with a possible rate hike by the middle of next year,” Mapa said.
ANZ Research chief economist Sanjay Mathur and economist Rini Sen said the BSP is likely to start tightening the country’s policy stance by the fourth quarter of next year.
“We continue to expect the first rate hike only in the fourth quarter of 2022,” the economists said.
Source: https://www.philstar.com/business/2021/06/28/2108482/bsp-keep-rates-record-lows-prolonged-period