27.8 C
Manila
Thursday, April 18, 2024

Moody’s think tank: No BSP rate cut soon

- Advertisement -

THE Bangko Sentral ng Pilipinas (BSP) is expected to keep its key rates unchanged in its first monetary-policy meeting in 2021.

Moody’s Analytics Chief Asia Pacific Economist Steve Cochrane said the BSP has already cut heavily in 2020 and will likely wait for these cuts to take effect in 2021 before cutting further to support the economy.

“The Philippines’s Central Bank is expected to keep its key policy rate unchanged at 2 percent at its February meeting. The domestic health crisis has worsened since then, as have parameters of consumer and business activity, but with rate cuts worth 200 basis points and a liquidity injection already delivered, the Central Bank has limited options but to wait for the returns from expansionary monetary policy to materialize in 2021, once local restrictions are fully relaxed,” Cochrane said.

The current monetary-policy rate of the country at 2 percent is the lowest on record for the economy. This is after the Central Bank cut its rates by a total of 200 basis points in 2020—25 basis points in February, 50 basis points in March, another 50 basis points in an off-schedule Monetary Board meeting in April, another 50-basis-point cut in June and the latest 25-basis-point cut in November—in an effort to curb the negative effects of pandemic-induced movement restrictions on the economy.

In a separate statement, ING Bank economist Nicholas Antonio Mapa also expressed belief that the BSP will hold policy rates steady in its upcoming meeting on February 11 as inflation recently quickened above their target range in January.

“[Bangko Sentral Governor Benjamin] Diokno is currently caught between a rock and a hard place with three options laid out before him.  A rate cut would be in-line with his recent directive to bolster economic activity but is counter to his price stability objective,” Mapa said.

“On the other hand, a rate hike at a time when economic activity is floundering would knock out the fledgling recovery while establishing only a token effect on price pressures given the nature of the breach,” he added.

At that rate, the BSP is left with leaving current monetary-policy conditions unchanged, especially in their February 11 meeting.

“A pause would still provide accommodation for the recovery while not feeding any unneeded inflationary pressure.

Thus, at this juncture, keeping policy rates unchanged would allow BSP to provide the economy support for the recovery while at the same time safeguard against any budding demand side pressure, which appears to be negligible at the moment,” Mapa said.

Image credits: Nonie Reyes
Read full article on BusinessMirror

- Advertisement -
- Advertisement -

Related Articles

- Advertisement -
- Advertisement -

Latest Articles

- Advertisement -