Bangko Sentral seen cutting rates in Q1 | Inquirer Business

Bangko Sentral seen cutting rates in Q1

/ 05:30 AM January 02, 2021

The inflation-targeting Bangko Sentral ng Pilipinas (BSP) has enough room to trim its key interest rates by another quarter percentage point this first quarter as consumer prices stabilize.

This was the view of investment house First Metro Investment Corp. and the University of the Asia and Pacific in their joint research publication “The Market Call” issued in December 2020.


The research noted that the uptick in November inflation was but a one-off event and that prices would revert to levels seen before the series of typhoons during the month.

The publication noted that Typhoon “Ulysses,” for instance, did not only cause severe flooding in Metro Manila and destruction in the northeastern and southeastern parts of Luzon, but also impaired the flow of food and beverages, pushing headline inflation to 3.3 percent in November from 2.5 percent in October.


As the disruptions were deemed transitory, FMIC and UA&P kept their annual inflation forecast of 2.6 percent for the year and expected only slightly higher inflation in 2021. By late November, they noted that consumer prices started to return to normal.

“Rice prices remain stable and other food prices should reverse their previous gains and thus offset recent uptick in crude oil prices,” the research said. “Money growth continues to decelerate and this, together with inflation going back closer to 2 percent by January 2021, provides the BSP with more elbow room to cut policy rates by another 25 basis points in first quarter 2021 to provide a further boost to the domestic economy and lower borrowing costs of [the national government].”

The publication noted signs of growing optimism regarding the country’s economic outlook not only among businesses, but also among consumers, and even health workers battling the COVID-19 pandemic.

“Business expectations have turned positive for the fourth quarter [of 2020], while for consumers, this reversal occurs for first quarter 2021, but the next 12 months show big improvements for both. These reflect expectations of a wider opening of the economy, more jobs and gains in the war against the pandemic,” the research said.

Apart from the recent approval and announced rollout of vaccines in December in the United States, China and some parts of Europe, the research noted the steady downward trend of daily cases, daily deaths and active cases in the country.

Meanwhile, the research said the strong performance of overseas Filipino remittances in the three-month period ending October suggested that 2021 would see a full-year positive gain, albeit at less than 5 percent.

On the foreign exchange market, FMIC and UA&P expected the peso to start weakening against the US dollar by the first quarter of 2021 when the economy would have recovered more earnestly and the trade deficit would have risen to reflect the resurgence in the importation of capital goods and raw materials.

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TAGS: Bangko Sentral ng Pilipinas (BSP), Inflation, Interest rates‎
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