BSP seen to keep rates unchanged in today’s meet
The Bangko Sentral ng Pilipinas (BSP) is seen to keep its key interest rates unchanged at today’s monetary policy setting as recent consumer price pressures are expected to decelerate in the months ahead.
Chidu Narayanan, economist for Asia at British bank Standard Chartered, said in a research note the BSP would likely keep its rates on hold through the entire 2021 and 2022, anchored on a “moderation in inflation combined with still-soft growth and subdued sentiment.”
Narayanan said inflation this year had likely plateaued in the second quarter, after spiking sharply in the first quarter. This was while the imposition of renewed nationwide lockdowns in March had gnawed on activity, hurting demand, the economist noted.
“We expect inflation to ease in the second half as the low base from 2020 fades. This should provide the BSP with space to maintain easy monetary policy, at least through the rest of 2021,” Narayanan said.
Meanwhile, he noted that credit growth had declined to multidecade lows due to lukewarm private-sector activity. This will likely remain muted this year on subdued sentiment, he added.
The country’s inflation rate in May stood at 4.5 percent, similar to the level in March and April, and was in line with market expectations. This indicated a continued overshooting of the BSP’s target range of 2-4 percent. ING Philippines economist Nicholas Mapa said in the world of central banks, the US Federal Reserve and other major central banks were generally the pacesetters, given the vast influence they have on global financial markets.
The Fed will likely need to eventually taper or lessen the amount of monetary stimulus and eventually reverse to a tightening cycle, but only if the US economy would show the commensurate amount of gains that each stage of the normalization would require, Mapa said.
“For now, we do expect the Fed to gradually ease up on the gas pedal by year-end, but we would like to highlight that this taper only constitutes less stimulus but not a full reversal in stance, or in driving parlance, stepping on the brakes,” Mapa said.
The US rate hikes, which are projected to start as early as 2022, will only be carried out if and when the US gets back close to full employment, he said.
“As for the Philippines, it’s quite clear that (BSP) Governor (Ben) Diokno is attempting to do what’s best for the economy while also monitoring the situation abroad as these developments would likely have a direct impact on the Philippine financial system,” Mapa said, noting that the BSP had telegraphed a long pause which meant that its overnight borrowing rate would be anchored at 2 percent until at least June of 2022.
“The notion that we need to calibrate a preemptive move to prepare for a rate hike a year and a half down the line may not work in the best interest of the economy and would translate to BSP hitting the brakes just when we get the car inching forward. This could leave us susceptible to being the only car left on the track, wobbling further as all others zoom past us on the road to economic recovery,” Mapa said. INQ
