BSP seen keeping policy rates unchanged

Amid a sluggish pace of economic recovery, the Bangko Sentral ng Pilipinas (BSP) is likely to keep its key interest rates steady even if the inflation rate remains above targeted levels, said an economist at American banking giant JP Morgan.

“In our view, maintaining low borrowing costs for households and corporates alike will be key in shaping the demand recovery in the context of weak loan growth and, thus, the BSP will likely maintain its current accommodative stance as long as sentiment remains weak,” JP Morgan economist Nur Raisah Rasid said in a research note.

Rasid issued the commentary following the release of Philippine April trade data, which showed the trade deficit had narrowed slightly while domestic activity slowed due to renewed coronavirus lockdown measures.

The trade deficit amounted to $2.73 billion in April, in line with JP Morgan’s expectations, albeit higher than the consensus deficit forecast of $2.4 billion. In seasonally adjusted terms, the trade deficit narrowed to $2.44 billion in April.

Meanwhile, JP Morgan noted a broad-based trade slowdown due to tightened quarantine measures amid a resurgence in COVID-19 infections that had far exceeded the peak of the first wave of infections last year.

As such, the research noted that trade activity had slowed both exports and imports by 7.9 percent month-on-month and 8.9 percent month-on-month seasonally adjusted, leaving overall trade deficit broadly flat compared to March.

“While our macro narrative for the Philippines pencils in a capex (capital expenditure) recovery in fourth quarter, the slow vaccine rollout imply further delay of activity normalization to first quarter of 2022,” it said. In that context, the economist noted that capital goods imports contracted by 3.3 percent month-on-month seasonally adjusted in April following consecutive month-on-month expansion. Meanwhile, exports declined by 7.9 percent month-on-month seasonally adjusted across both tech and nontech sectors.

“All told, the trade balance remains a key macro metric to watch for in assessing the underlying momentum of overall economic activity and the implications for growth and external balances. We expect the BSP to remain on hold despite the CPI (consumer price index) overshoots,” the research said.

The BSP’s overnight borrowing rate is currently at 2 percent.

The country’s annual inflation in May came in at 4.5 percent, similar to the rates in March and April, and was in line with market expectations. This is still higher than the BSP’s target range of 2-4 percent.

Year-on-year, the country’s export receipts jumped by 72.1 percent while imports surged by 140.9 percent, coming from a very low base last year. INQ