Bangko Sentral seen keeping rates steady until 2021 | Inquirer Business

Bangko Sentral seen keeping rates steady until 2021

By: - Business Features Editor / @philbizwatcher
/ 04:40 AM September 05, 2020

After slashing key interest rates by 175 basis points this year, the Bangko Sentral ng Pilipinas (BSP) is likely to keep monetary settings unchanged through 2021 as real interest rates have turned negative, an economist from ING Philippines said.

ING expects inflation for the remainder of this year to remain at the lower end of the BSP’s inflation target band of 2 to 4 percent given depressed economic activity and a stronger Philippine peso against the US dollar, which was making imports much cheaper in local currency terms.

As real policy rates remained negative (-0.15 percent), ING Philippines economist Nicholas Mapa said in a research note on Friday that the BSP would likely “keep policy levers untouched well into 2021.”


Real interest rates turn negative if inflation exceeds the nominal interest rate, an unusual scenario that happens during an economic recession.


This developed as the country’s year-on-year inflation rate in August fell to 2.4 percent from 2.7 percent in July, bringing year-to-date inflation to 2.5 percent. The August inflation print came in lower than the consensus forecast of 2.7 percent.

“Price pressures moderated in August as demand side price pressures faded much faster than anticipated with the economy now in recession. The capital region was placed under a more stringent quarantine level for the first two weeks of the month, which may have slowed already hobbled demand further,” Mapa said.

Despite the downside surprise in the August inflation report, BSP Gov. Benjamin Diokno hinted that there would likely be no adjustments to monetary policy settings “for at least two quarters” and that he would likely refrain from reducing the reserve requirement with the financial market flooded with liquidity.

The BSP has so far slashed the reserve requirement by 2 percentage points this year to 12 percent.

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TAGS: Bangko Sentral ng Pilipinas, BSP, ING Philippines

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