Analysts: BSP would do well to maintain key rates

The Bangko Sentral ng Pilipinas (BSP) keeping interest rates at the current record-lows would aid the Philippines’ economic recovery amid lingering risks from the pandemic, economic think tanks said.

“Falling inflation and an increasingly uncertain economic outlook add weight to our non-consensus view that the central bank in the Philippines will not start tightening in 2022,” Capital Economics senior Asia economist Gareth Leather and Asia economist Alex Holmes said in a report on Friday.

The London-based Capital Economics said it expected headline inflation to further fall to 2.4 percent year-on-year this month following last month’s within-target 3.6 percent print.

For both 2022 and 2023, Capital Economics projected a 3-percent annual inflation rate, within the BSP’s 2-4 percent target band of manageable consumer price hikes conducive to economic growth. Last year, headline inflation hit a three-year high and above-target 4.5 percent mainly due to expensive food and oil products.

The recent inflation decline, however, came alongside an economic outlook which Capital Economics said “worsened” due to a surge in virus cases.

Capital Economics slashed its 2022 GDP growth forecast for the Philippines to 8.5 percent, within the government’s 7-9 percent target range, from the above-goal 10.5 percent previously.

Singapore-based United Overseas Bank last week also said it expected the BSP to hold on to prevailing key interest rates during the first half of this year “to uphold the nation’s fragile economic recovery.” INQ