BSP seen to keep key rates to support economic recovery

BSP seen to keep key rates to support economic recovery

MANILA – Economists have forecast Philippine monetary authorities to continue keeping key rates at their record-low amid spikes in the domestic inflation rate, citing the need for measures to address economic vulnerability from the pandemic.

On Thursday, the Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) maintained the central bank’s key rates, with BSP Governor Benjamin Diokno underscoring the need to support the government’s economic recovery efforts.

In a report, ING Bank Manila senior economist Nicholas Mapa said Diokno has indicated the greater need for non-monetary measures to address supply-side pressures caused by the African swine fever, among others.

“Diokno reiterated his support for the fledgling economic recovery, highlighting that 2021 would be the start of the recovery phase for the economy in recession,” Mapa said. “The BSP governor hinted at retaining monetary support for as long as the economy would need it, suggesting that the previously mentioned ‘long pause’ would be in effect for a little longer.”

He said while BSP officials are studying possible exit strategies for the measures put in place to help address the pandemic, they continue to discount its implementation given the current economic situation.

“Despite substantial rate cuts and liquidity support, bank lending has crashed into negative territory given weak demand from both corporates and households given the recession, suggesting that last year’s easing efforts have yet to take root,” Mapa added.

In a report, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the economy “still needs all the support measures that it could get.”

“Thus, monetary easing, at least by keeping policy rate steady at the record low of 2 percent, would still be needed to support economic recovery prospects from Covid-19 (coronavirus disease 2019),” Ricafort said.

Rate hike measures, he said, are possible in the coming weeks or months if risks of second-round effects, such as petitions for fare and electricity rate hikes, would emerge.

“It would be a delicate balancing act to support economic recovery prospects, on one hand, and to better manage inflation and inflation expectations, on the other hand, especially if there would be second-round inflation effects, as higher prices may not be needed now, in view of the adverse effects of Covid-19, especially on hard-hit/most vulnerable sectors, in terms of reduced household incomes/budgets,” Ricafort added. (PNA)

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