RCBC chief economist Michael Ricafort (Photo courtesy of RCBC)
MANILA – An economist said Friday a cut in banks’ reserve requirement ratio (RRR) remains possible if the elevated inflation rate stabilizes, citing the economy needs all the support it can get to recover from the pandemic.
In a report, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said real interest rate further dipped into negative territory after the February 2021 inflation rate accelerated to its new two-year high of 4.7 percent, compared to the 2-percent key policy rate of the central bank.
“Thus, for the coming weeks/months, any further monetary easing measures, especially any further cut in banks' RRR, remain possible, especially if inflation stabilizes, 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 (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,” he said.
Last year, the BSP policy-making Monetary Board reduced the central bank’s key policy rates by 200 basis points to help buoy the domestic economy from the impact of the pandemic.
Economists said the aggressive cuts in the BSP rates should be accompanied by similar fiscal measures to boost chances of economic recovery.
Since inflation is currently driven by supply-side factors like higher global oil prices and supply constraints on some food items like meat and vegetables,
Ricafort said non-monetary measures would help address the elevated rate of price increases.
“However, any increase in the prices of other goods and services in the economy, or second-round inflation effects, would potentially lead to some modest monetary tightening by way of a slight hike in policy rates to better manage both inflation and inflation expectations from spiralling further, if needed,” he said.
Ricafort said government funding constraints for additional pandemic-related expenses “would put greater onus on monetary easing measures to do more heavy lifting for the economic recovery initiatives, going forward.”
Any monetary measure would complement the increased infrastructure spending by the government along with the implementation of recovery measures such as the Financial Institutions Strategic Transfer (FIST), he added. (PNA)
