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Philippines: Record low interest rates stay
BSP winds down easing cycle
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) decided yesterday to keep its interest rates steady on the back of improved mobility and sentiment that could facilitate the recovery of the economy from the pandemic-induced recession.
In a virtual press conference, BSP Governor Benjamin Diokno said the Monetary Board decided to keep the overnight reverse repurchase rate at an all-time low of two percent.
Likewise, the overnight deposit and overnight lending rates were kept at 1.50 percent and 2.50 percent, respectively.
In all, the BSP slashed interest rates by 200 basis points this year as part of aggressive easing measures to cushion the impact of the pandemic on the economy.
“The Monetary Board noted that the resurgence of COVID-19 cases globally has tempered economic activity with the reimposition of preventive measures in recent weeks,” Diokno said.
However, the BSP chief said optimism over the delivery of vaccines has lifted market confidence, supporting improved prospects for global growth.
On the domestic front, Diokno said the Monetary Board also observed early indications of improved mobility and sentiment.
“While recent natural calamities could pose strong headwinds to growth, the further easing of quarantine measures should help facilitate the recovery of the economy in the coming months,” Diokno said.
Diokno said authorities believe that monetary policy settings remain appropriate.
“The Monetary Board believes that an accommodative monetary policy stance, together with sustained fiscal initiatives to ensure public welfare, should quicken the economy’s transition toward a sustainable recovery,” Diokno said.
Economic managers through the Development Budget Coordination Committee (DBCC) now expect a deeper gross domestic product (GDP) contraction of 8.5 to 9.5 percent this year.
According to the BSP, the balance of risks to the inflation outlook also leans toward the downside from 2020 to 2022 owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic.
BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board decided to raise anew its inflation forecast to 2.6 percent for this year and to 3.2 percent for next year due to the sharp increase in global crude oil prices and the higher-than-expected food inflation in November.
Inflation accelerated to a 21-month high of 3.3 percent in November from 2.5 percent in October, bringing the average to 2.6 percent from January to November. This was the fastest since the 3.8 percent booked in February 2019.
Dakila said the inflation forecast for 2022 was retained at 2.9 percent.
“It can be noted that the baseline forecasts remain comfortably within the target band and the outlook can be described as continuing to be benign,” Dakila said.
The BSP has set an inflation target of two to four percent between 2020 and 2022.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the aggressive rate cuts by the BSP has resulted in negative interest rate returns with inflation averaging 2.6 percent in end-November, while the benchmark rate stood at two percent.
“Average inflation from January to November 2020 stood at 2.6 percent, thereby resulting in negative interest rate returns and making any further cuts in local policy rate somewhat challenging for now,” Ricafort said.
Diokno assured the public that the BSP remains committed to deploying its full range of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to growth.
Source: https://www.philstar.com/business/2020/12/18/2064521/record-low-interest-rates-stay