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Philippines: BSP unlikely to cut rate further
MANILA, Philippines — Singapore’s DBS Bank Ltd. expects the Bangko Sentral ng Pilipinas (BSP) to keep the benchmark interest rate at an all-time low of two percent this year due to rising inflation.
Philip Wee, foreign exchange strategist for Asia at DBS, said inflation is seen accelerating further after breaching the higher end of the BSP’s two to four percent target in January.
“With inflation above its official two to four percent target range in January and likely to head higher, the BSP will refrain from easing interest rates,” Wee said.
The BSP emerged as one of the most aggressive central banks in the world last year as it slashed interest rates by 200 basis points, lowered the reserve requirement ratios for banks, extended loans to the national government and purchased government securities in the secondary market.
These measures unleashed P2 trillion, more than 11 percent of gross domestic product (GDP), to the financial system.
On Feb. 11, the Monetary Board decided to keep interest rates steady to give the ailing economy a boost, but raised its inflation forecast this year to four percent instead of 3.2 percent as inflation quickened to a two-year high of 4.2 percent in January.
Wee said the Philippines is likely to miss its GDP growth target this year after posting a record contraction of 9.5 percent last year due to the impact of the pandemic.
For one, Wee said the National Economic and Development Authority (NEDA) expects GDP growth to turn negative in the first quarter.
Wee also said more fiscal spending is unlikely after the record P4.5 trillion budget approved last December lifted this year’s budget deficit ceiling to 8.9 percent of GDP from 7.6 percent last year.
Wee said the peso is likely to end the year at 48 to $1 due to the slight decline in overseas Filipino workers’ remittances and the possibility that the country’s current account surplus may return to deficit this year.
Source: https://www.philstar.com/business/2021/03/02/2081226/bsp-unlikely-cut-rate-further