RCBC chief economist Michael Ricafort (left) and ING Bank Manila senior economist Nicholas Mapa
MANILA – Economists forecast the Bangko Sentral ng Pilipinas (BSP) to keep key rates steady this year to help lift the domestic economy and reduce banks’ reserve requirement ratio (RRR) once inflation stabilizes.
In a report released after the central bank announced that its policy-making Monetary Board (MB) maintained the key rates for the fifth consecutive rate-setting meet or since November 2020, ING Bank Manila senior economist Nicholas Mapa cited BSP Governor Benjamin Diokno’s statement about monetary authorities’ willingness to provide policy support “for as long as needed.”
“With price pressures fading and inflation set to slide back within target in the coming months, we expect BSP to extend its pause for the balance of the year with a possible rate hike by the middle of next year,” he said.
Last year, the MB slashed BSP’s key policy rates by a total of 200 basis points to help lift the domestic economy from the impact of the virus-induced pandemic.
Meanwhile, Mapa expects the local currency “to remain pressured in the near term on anxiety over the timing of the Fed (Federal Reserve) taper with BSP likely holding off on hiking policy rates to jumpstart stalling bank lending and revive the ailing economy.”
The peso weakened to the 48-level in recent days but is holding on to that level against the US dollar.
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the MB’s decision on Thursday is widely expected on the back of expected easing of domestic inflation rate in the coming months and the need to support the domestic economy’s recovery.
Inflation averaged at 4.4 percent in the first five months this year, with the January figure exceeding the government’s target band of between 2-4 percent when it accelerated to 4.2 percent.
It further rose to 4.7 percent in February but decelerated to 4.5 the following month until last May.
Ricafort expects rate of price increases to decelerate in the coming week or months, partly due to the temporary cut in import tariffs for pork and rice, a move the government implemented to boost domestic supply especially of pork, after supply was affected by the African swine fever.
He expects inflation to remain at 4 percent until September or October.
Ricafort said the slower economic recovery prospects because of the impact of stricter quarantine measures in March and several weeks after, as well as high coronavirus disease 2019 (Covid-19) cases and delay in vaccine arrivals due to supply issues “would also translate to relatively slower demand-side inflationary factors.”
“Thus, more accommodative monetary policy measures in terms of relatively lower borrowing costs/financing costs would continue and be justified to support economic recovery prospects, going forward,” he said.
Another factor on the future policy rate decisions of the BSP is the hawkish signal from the Fed and the tapering of the Fed’s bond purchases, he added.
Several Fed officials recently indicated the possibility of rate hikes by 2023, earlier than expected.
Some even hinted at this possibility by 2022.
To date, the Fed’s target interest rate is between zero to 0.25 percent.
“Any cut in large banks' reserve requirement ratio (RRR), from the current 12 percent, would be possible especially if inflation stabilizes in the coming months,” he added.
The BSP slashed banks’ RRR by as much as 200 basis points last year as part of its measures to help lift the domestic economy. (PNA)
