RCBC chief economist Michael Ricafort (left) and ING Bank Manila senior economist Nicholas Mapa
MANILA – Further cut in banks’ reserve requirement ratio (RRR) is expected this quarter since the uptick in inflation rate last December is considered as a factor for monetary authorities to keep key rates steady anew.
In a report, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said acceleration to 3.5 percent of the rate of prices increases last December from month-ago’s 3.3 percent “could somewhat temper/limit any further monetary easing measures for now, especially and particularly on local policy rates.”
Ricafort attributed last month’s rise in inflation partly to weather-related impact on agriculture products in different parts of the country and increased demand during the holidays.
“Thus, for the coming weeks/months, any further monetary easing measures, especially any further cut in banks' RRR, remain possible as 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 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,” he said.
Inflation averaged at 2.6 percent last year, within the government’s 2-4 percent target band until 2024.
Last year, the Bangko Sentral ng Pilipinas (BSP) reduced banks’ RRR by as much as 200 basis points to help provide banks with additional liquidity for lending.
This cut is half of the 400 basis points that the central bank’s policy-making Monetary Board (MB) authorized BSP Governor Benjamin Diokno to implement in the near term.
Ricafort forecasts further easing of quarantine measures in Metro Manila in the early part of this year into modified general community quarantine (MGCQ) from the current GCQ to further increase economic activities and help generate more tax revenues that will help finance the government’s infrastructure programs.
The bid to help address the impact of the pandemic was the primary factor for the aggressive cuts in the central bank’s key rates last year, which brought the current level to 2 percent, slashed off with a total of 200 basis points.
“For the meantime, the lack of additional funding for fiscal stimulus measures would still lead to more monetary easing measures that help reduce borrowing costs,” Ricafort added.
In a report, ING Bank Manila senior economist Nicholas Mapa discounted any cut in the BSP’s key rates in the near term after the acceleration of inflation rate, which is its highest after hitting 3.8 percent in February last year.
He said the latest inflation print brought the real domestic interest rate to -1.5 percent to date, so the “BSP (is) not likely to cut policy rates anytime soon.”
“We forecast inflation to remain at 3 percent for 1Q (first quarter) 2021 with BSP likely keeping policy rates unchanged with (BSP Governor Benjamin) Diokno possibly utilizing his provisional 200 bps reduction in RR by 1Q should 4Q (fourth quarter) 2020 GDP disappoint,” he added.
Gross domestic product (GDP) registered a lower contraction in the third quarter of 2020 at -11.5 percent from decades-high of -16.9 percent in the previous three months.
Authorities expect fourth-quarter economic output to post further improvement on continued reopening of the domestic economy. (PNA)
