MANILA – ANZ Research forecasts a further reduction of 25 basis points in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates in the first quarter next year as the economic recovery continues to face challenges.
In a report dated Dec.17, the markets and economic research provider said the uncertain economic environment has affected consumer and business confidence thus, the slow pass-through rate of the total of 200 basis points reduction in the BSP’s key rates this year.
This situation, it said, made monetary policy transmission ineffective to date.
It also noted, “despite negative real interest rates, credit growth has been weak across households and businesses”.
The BSP has reported a slowdown to 1.9 percent of universal and commercial banks’ loan growth, excluding placement in the central bank’s reverse repurchase (RRP) facility, last October from 2.6 percent in the previous month.
It attributed this development to “combined effects of muted business confidence and banks’ stricter loan standards attributed mainly to continued disruptions in business operations.”
ANZ Research said domestic sentiments have improved but weak export growth and labor market and continued repatriation of overseas Filipino workers (OFWs), which affects consumer demand, dampen recovery opportunities.
“The economic recovery has a long way to go and therefore, in our view, the rate cut cycle is not yet over, with another 25 bps cut likely in Q1 2021,” it added.
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort also forecasts possible cuts in the BSP’s key rates next year even with the recent uptick in the domestic inflation rate.
He said the 21-month high inflation rate of 3.3 percent last November, which was traced to the impact of Typhoons Ulysses and Rolly on some agricultural products, makes any cut in the central bank’s policy rates “somewhat challenging now.”
He, however, projects inflation to ease from December this year until February next year to over 2 percent.
This, he said, “could still support any additional monetary easing measures, going forward.”
Average inflation in the first 11 months this year stood at 2.6 percent, within the government’s 2-4 percent target band until 2022.
The BSP has revised upwards its average inflation forecast for this year and next year to 2.6 percent and 3.2 percent, respectively, but kept the 2022 forecast at 2.9 percent.
The previous 2020 forecast is 2.4 percent while the 2021 forecast was 2.7 percent.
“Inflation could fundamentally pick up in 2021 especially if economic recovery picks up further, especially with any additional measures to further reopen the economy especially if the Covid-19 (coronavirus disease 2019) vaccine rolls out in 2021 that could help lower new Covid-19 local cases (from the current 1,000 per day levels recently), increased infrastructure spending, and lower base/denominator effects starting March 2021 or exactly a year after the Covid-19 lockdowns/pandemic started (that would mathematically lead to higher year-on-year inflation rate thereafter, assuming all other factors remain the same),” he added. (PNA)