With inflation threat tempered, BSP anticipated to maintain key rate
The Bangko Sentral ng Pilipinas (BSP) is expected to leave the policy rate untouched at a record-low 2 percent on Thursday as inflation continued to soften.
“We believe there is no further room for the BSP to ease further. But with inflation moving within target, the central bank is likely to keep its policy rate unchanged this year,” HSBC Global Research said in a report ahead of the Monetary Board’s meeting on Aug. 12.
Inflation slowed to 4 percent year-on-year in July, the first time this year that the rate of increase in prices of basic commodities returned within the 2-4 percent target band. However, the end-July average stood at 4.4 percent, still above the target.
HSBC also noted that during the last policy meeting back in June, the BSP had assured that “support will remain ‘as long as necessary’ to ensure economic recovery.”
Steady interest rates
Deutsche Bank Research’s chief Asia economist Juliana Lee also projected the BSP would keep key interest rates steady “despite increasing downside risks to the Philippines’ economic growth in the third quarter amid recurring COVID-19 outbreaks, as the latter also weigh on the peso.”
In a report last week, Goldman Sachs Economics Research said it expected the BSP “to be patient in normalizing policy rates, keeping the policy rate on hold until late 2022.”
In contrast, London-based Capital Economics said the latest inflation data “opens the door to further easing to support the economy, which remains in a very weak state.”
“Our forecast is that the BSP will cut rates in September, but an early rate cut cannot be ruled out given the worsening economic outlook. The central bank has also flagged the possibility of a cut to the reserve requirement ratio,” it said.
