Economist eyes 25 bps cut in BSP rates this quarter

Economist eyes 25 bps cut in BSP rates this quarter

MANILA – An economist forecasts another 25 basis points cut in Bangko Sentral ng Pilipinas’ (BSP) key rates either in February or March as part of the central bank’s bid to help in the economy’s recovery.

“As soon as the fourth-quarter GDP (gross domestic product) comes out, which is expected to be negative, there will be a reason to ease up further,” Dr. Victor Abola, UA&P economist, said during the First Metro Investment Corporation’s (FMIC) annual economic and capital markets briefing Thursday.

Abola said the possible cut will also depend on the inflation figure, which he forecasts to decline below 2 percent next month.

He said a cut in the central bank’s key rates is more likely than a reduction in banks’ reserve requirement ratio (RRR).

Last year, BSP’s key rates were slashed by a total of 200 basis points in a bid to encourage banks to lend more and ensure that economic activities remain robust amidst the pandemic.

To date, the central bank’s overnight reverse repurchase (RRP) rate is at record low of 2 percent, the overnight repurchase at 2.5 percent, and the overnight deposit rate at 1.5 percent.

Last year, BSP reduced banks’ RRR by as much as 200 basis points to further increase liquidity that banks can lend to their clients.

This cut is half of the 400 basis points that the policy-making Monetary Board (MB) authorized BSP Governor Benjamin Diokno to implement.

Abola projects domestic rate of price increases to average at 2.7 percent this year, within the government’s 2-4 percent target band until 2024.

Inflation averaged at 2.6 percent last year, although upticks were registered in the last quarter due partly to the impact of typhoons on agriculture products.

He said the domestic economy likely registered a -9 to -10 percent output last year, slightly deeper than the government’s -8.5 to -9.5 percent target band.

As of the third quarter last year, the GDP contracted by 10 percent due to the coronavirus pandemic.

Abola forecasts domestic growth to recover to between 5.5-6.5 percent this year, lower than the government’s 6.5-7.5 percent target range. (PNA)

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