BSP seen pausing rate cuts for now | Inquirer Business

BSP seen pausing rate cuts for now

/ 04:10 AM June 22, 2020

As inflation remains low and stable, the Bangko Sentral ng Pilipinas (BSP) is expected to keep interest rates unchanged when its policy-making Monetary Board meets on Thursday.

“The governor of the central bank in the Philippines recently signaled that he is in no rush to loosen policy further. While this makes a rate cut [this] week unlikely, more cuts are still almost certain in the months ahead,” Capital Economics senior Asia economist Gareth Leather said in a June 19 report titled “On hold despite record slump,” referring to BSP Governor Benjamin E. Diokno.

So far this year, the BSP already reduced the policy rate by 125 basis points to 2.75 percent.

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As of end-May, headline inflation averaged 2.5 percent, within the government’s 2 to 4 percent target range.

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Capital Economics said additional interest rate cuts moving forward would be due to a “dreadful outlook for growth, among the worst in the region,” following what was said to be one of the most stringent lockdowns globally that, at its height from mid-March to mid-May, halted 75 percent of the domestic economy.

“All of the data so far suggest the strict lockdown has had an enormous impact on the economy. Industrial production plummeted nearly 60 percent year-on-year in April, while exports collapsed by 51 percent. Labor market data were equally horrific, showing an increase in the number of people unemployed of around eight million. Around 40 percent of those still formally employed were not working either,” Capital Economics said.

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It attributed the year-to-date drop in Philippine exports mainly to “factory and port shutdowns, rather than weakness in global demand” during the COVID-19 lockdown.

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“While there will have been some recovery recently as restrictions have been lifted, we suspect the economic scars will take a long time to heal. As such, the economy is in clear need of further support. We expect another 75 bps of easing within the next few months,” Capital Economics added.

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In its June 18 global economic calendar report, HSBC Global

Research said that with the BSP having reduced its policy rate by 125 bps year-to-date, it did not see the need for another interest rate cut at the upcoming meeting on June 25.

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“Indeed, Diokno has repeatedly stated that the policy rate remains appropriate for now. In addition to rate cuts, the BSP is helping to boost domestic activity by ensuring sufficient liquidity in the market through its expanded open market operations and a 100-bp cut to banks’ reserve requirement ratio,” HSBC said. —Ben O. de Vera INQ

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TAGS: Bangko Sentral ng Pilipinas (BSP), BSP, Business

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