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Further BSP rate cuts seen in 2021

/ 04:10 AM December 02, 2020

The Bangko Sentral ng Pilipinas (BSP) is expected to slash interest rates some more next year amid an expected slow economic recovery, London-based Capital Economics said.

“The central bank in the Philippines also cut interest rates at its November meeting. The weakness of the recovery and the low level of fiscal support means further easing is likely,” Capital Economics senior Asia economist Gareth Leather, Asia economist Alex Holmes and research assistant Oliver Byrne said in a Nov. 30 report titled “Rate-cutting cycle not over yet.”

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Capital Economics was referring to the BSP’s surprise 25-basis point (bp) cut in key rates last month, which slashed the policy rate by a cumulative 200 bps so far this year to a record low of 2 percent.

It noted that the gross domestic product (GDP) of the Philippines, India and Thailand remained about 5 to 10 percent below their prepandemic levels.

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“Given the big hole that many countries still find themselves in, monetary policy will need to remain loose for some time to come,” Capital Economics said.

In the case of the Philippines, Capital Economics projected the policy rate further falling to 1.5 percent in 2021.

It said the upcoming BSP cuts were expected next year, citing that “inflation is no barrier” given a within-target rate of increase in prices of basic commodities so far this year.

End-October inflation averaged 2.5 percent, within the government’s target range of 2-4 percent, although the November rate likely rose as a result of the strong typhoons that battered the country last month.

“While rising fuel price inflation will push up the headline rate early next year, the weakness of the economy will keep core price pressures subdued,” Capital Economics said.

“On a brighter note, new virus cases have continued their downward trend. But there has been little sign of resulting improvement in the timely mobility data. With the virus still not under control, social distancing measures will need to stay for months to come, which will drag on the recovery” in the Philippines, it added. Ben O. de Vera

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TAGS: Bangko Sentral ng Pilipinas (BSP), Business
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