ING Bank Manila senior economist Nicholas Mapa
MANILA – An economist forecasts steady policy rates for the Bangko Sentral ng Pilipinas (BSP) in the near term, citing the need for regulators to continue supporting the domestic economy during the pandemic.
This, after the BSP reported on Tuesday that bank lending contracted by 2.4 percent year-on-year last January.
“With capital formation in the doldrums and bank lending in the red, the prospect of tightening monetary policy will likely be low on the list of priorities at the central bank,” ING Bank Manila senior economist Nicholas Mapa said in a report.
Last year, BSP’s policy-making Monetary Board (MB) slashed the central bank’s key rates by a total of 200 basis points in a bid to help buoy the domestic economy from the impact of the coronavirus disease 2019 (Covid-19) pandemic.
Mapa said “a rate hike at this stage will all but ensure that bank lending stays in contraction and for a much longer time as any signal from BSP that monetary support is on its way out of town would usher in financial market panic last seen in 2018.”
“And thus, despite the recent surge in consumer prices, BSP will hold off on the urge to hike policy rates in the near term and provide the economy much needed support for as long as it can, knowing fully well that this inflation episode will fade once supply-side bottlenecks are addressed,” he said.
Rate of price increases breached the government’s 2-4 percent target band last January after it rose to 4.2 due to supply constraints on meat products because of the African swine fever (ASF) and the upticks in global oil prices.
The BSP forecasts the February 2021 inflation rate to range between 4.3 percent to 5.1 percent and the elevated rates are seen to last until around the second to third quarter of the year.
Mapa said the negative bank lending print is expected given the weaker loan demand among firms and households because of the recession.
“We expect bank lending to remain in the red for the next couple of months with NPL (non-performing loan) ratios likely edging higher with the recession taking root,” he added. (PNA)
