No more policy rate cut seen this year
After slashing the policy rate by a cumulative 200 basis points (bps) to a record-low of 2 percent this year to keep the economy afloat amid the COVID-19 pandemic, the Bangko Sentral ng Pilipinas (BSP) is expected to pause from further easing during its last monetary policy meeting this year.
“We expect the BSP to stay on hold at the upcoming Monetary Board meeting [on Thursday, Dec. 17], and we have no more rate cuts penciled in our base case in 2021. This is because we believe the economy has already started to turn around and GDP (gross domestic product) growth would likely accelerate to above-trend in 2021 on vaccine availability, low base effects and accommodative policies,” Morgan Stanley Research said in a Dec. 9 report.
Economic managers expect GDP to shrink by 8.5 to 9.5 percent this year before rebounding with 6.5 to 7.5 percent growth next year.
“We think manageable inflation and the abundant liquidity provided by the Fed’s [US Federal Reserve] average inflation targeting framework mean that the BSP would likely continue to keep policy rate accommodative at current levels in 2021. In fact, RRR (reserve requirement ratio) cuts are still likely as a potential tool as policymakers have commented that the RRR is still high relative to peers and there is room to bring this down, possibly to single-digit territory by 2023,” Morgan Stanley Research said.
In a Dec. 9 report, ING’s senior Asia economist Prakash Sakpal also expected the BSP to leave rates unchanged.
“In the Philippines, the latest CPI (consumer price index) spike to a 20-month high of 3.3 percent year-on-year in November from 2.5 percent in October has pushed the central bank policy bears out of the game,” Sakpal said.
Capital Economics senior Asia economist Gareth Leather said in a report that “while we expect a pause in December, more easing is still likely next year.”
“A spike in headline inflation last month will probably discourage the [BSP] from making back-to-back cuts,” he said, referring to the surprise 25-bp cut in November. INQ
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