Capital Economics believes BSP has more rate cut plans up its sleeve

By: - Reporter / @bendeveraINQ
/ 05:20 AM September 25, 2020

The Bangko Sentral ng Pilipinas (BSP) is seen to sustain the heavy lifting to reverse the COVID-19-induced recession by further reducing interest rates and snapping up more government IOUs.

“We still expect further rate cuts in most countries over the coming months, with the central bank in the Philippines likely to be next to pull the trigger at its meeting on Oct. 1,” Capital Economics senior Asia economist Gareth Leather said in a report on Thursday titled “Too soon to call an end to Asia’s easing cycle.”


The BSP had indicated it would pause from monetary easing after it slashed the policy rate by a cumulative 175 basis points to a record low of 2.25 percent at the height of the COVID-19 lockdown, which shed trillions of pesos from the economy on top of a million jobs lost.

Still, Capital Economics said gross domestic product (GDP) in Asian countries worst hit by COVID-19 such as the Philippines and India were likely still 10-15 percent below their prepandemic levels.


The Philippine economy shrank by an average of 9 percent in the first half of the year.

Capital Economics earlier projected the Philippines’ GDP would revert to its prepandemic level by mid-2021.

In a separate report, Washington-based Institute of International Finance (IIF) noted the Philippines and Indonesia “have stated explicitly that bond purchases are intended to facilitate COVID-19-related spending in the context of cyclical revenue weakness.”

“In the Philippines, domestic banks have been active in local government bond markets as monetary policy measures by the BSP created additional liquidity. While the BSP is authorized to acquire government securities, actual purchases remain modest,” IIF deputy chief economist Elina Ribakova, economist Benjamin Hilgenstock and associate economist Yuanliu Hu said in a Sept. 23 report.

The Bayanihan to Recover as One Act had raised to P850 billion from P540 billion the amount that the BSP could advance to the national government for COVID-19 response.

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TAGS: Bangko Sentral ng Pilipinas (BSP), Capital Economics
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