With inflation concerns now out of the way, the Bangko Sentral ng Pilipinas (BSP) is expected to do the heavy lifting and cut interest rates in September to help in economic recovery, London-based Capital Economics said.
After headline inflation eased to 4.1 percent year-on-year in June or closer to the BSP’s target of 2-4 percent, Capital Economics said it expected the rate of increase in prices of basic commodities to “drop to around 2 percent by year-end as food and fuel prices ease further.”
“Worries about price pressures have prevented the central bank from cutting rates this year. But if our inflation projections are correct, the BSP is likely to act soon,” it said in a July 28 report.
While most other economists projected the BSP to keep key interest rates steady, Capital Economics was expecting a 25-basis point rate cut during the central bank’s September monetary policy setting meeting.Amid the threat of the more contagious Delta variant of COVID-19 lurking around, it said the current slow pace of mass vaccination meant the Philippines was “at risk of further lockdowns.”
“So far, less than 6 percent of the population have been fully jabbed and the government is unlikely to reach its target of fully inoculating 70 percent of the population before the end of 2021,” Capital Economics said.
As such, “social distancing looks set to remain a major drag on growth throughout 2021 and beyond,” it added.
Capital Economics had projected gross domestic product growth this year at 6 percent, the lower end of the government’s 6-7 percent goal.