BSP to resume policy easing soon – analysts

The Bangko Sentral ng Pilipinas (BSP) is likely to resume its monetary policy easing in the months ahead after taking a “prudent pause” in its key interest-rate reductions.

This is according to analysts from London-based research consultancy firm Capital Economics, local lender Rizal Commercial Banking Corp. (RCBC) and Australia-based ANZ Research.

Their views came after the central bank announced on Thursday its decision to maintain its overnight borrowing, lending and deposit rates at 2.25 percent, 1.75 percent and 2.75 percent, respectively.

Alex Holmes, Capital Economics’ Asia economist, said delaying further cuts was not prudent, given the very weak outlook for the economy.

Capital Economics, he added, suspects that Philippine gross domestic product would plunge by around 8 percent this year, after it shrank by 9 percent in the first six months of the year.

“Given the dire outlook for growth and benign inflation environment, the case for more easing is clear,” Holmes said, adding that his firm was seeing a 50-basis-point (bp) reduction in interest rates by October.

RCBC chief economist Michael Ricafort said any further rate cut “is fundamentally challenging, for as long as it remains well below the headline inflation [rate].”

But he emphasized that more monetary easing measures, especially a further reduction in banks’ reserve requirement ratio (RRR), remain possible.

RRR, which is the proportion of current deposits that banks need to keep with the central bank against the sum they can loan out to borrowers, currently stands at 12 percent.

Ricafort also said “the economy needs all the support measures that it could get at this time, largely due to the adverse economic effects of the Covid-19 (coronavirus disease 2019) lockdowns/pandemic, amid the lack of additional funding for more fiscal stimulus measures, thereby making more monetary easing measures possible to help improve prospects of economic recovery, going forward.”

According to ANZ Research economists, further monetary accommodation by the Bangko Sentral is still necessary.

“However, given the limited monetary transmission, future policy action could be in the form of a reduction in the RRR,” they said, adding that an additional 200-bps cut for the rest of the year was likely.

Their views are consistent with the central bank’s commitment to deploy its full range of instruments “as needed in fulfillment of its mandate to promote non-inflationary and sustainable growth over the medium term.”

Contradicting them is ING Bank Manila senior economist Nicholas Antonio Mapa, who said monetary authorities were likely to refrain from making further cuts this year and “look to fiscal stimulus to complement the flurry of moves from the BSP to jump-start economic growth.”

“With the economy in recession and BSP likely running out of options to boost growth, fiscal authorities may need to front load expenditures to avoid another quarter of double digit contraction,” he added.

Source: TheManila Times