The Bangko Sentral ng Pilipinas (BSP) is expected to keep the benchmark rate unchanged when it meets on November 19, the second to its last two Monetary Board policy meetings for the year.
ING Bank, HSBC and Union Bank of the Philippines’ analysts all said that the Monetary Board will not move the policy rate in November and December.
ING Bank economist Nicholas Mapa said the BSP will likely continue with its hold position given that the economy is in recession and that inflation is within the government’s two-four percent target at 2.5 percent as of end-October.
BSP Governor Benjamin E. Diokno, he noted has “reiterated that he would likely keep policy rates untouched over the course of the next two quarters with real policy rates now negative (-0.25 percent) and after rolling out a series of aggressive rate cuts in 2020.”
Mapa said for ING, inflation is expected to settle at 2.4 percent in 2020 with an “anemic” domestic demand that will control price gains and with “BSP content with providing liquidity support via its bond purchase program to help stimulate the recovery.”
HSBC Global Research said the BSP is likely to keep its policy rate unchanged throughout 2020 and they expect a 25 basis point (bp) cut to a flat two percent in the first quarter 2021 from its current 2.25 percent as “mobility restrictions are loosened further and the BSP looks to provide a boost to growth.”
“We expect the BSP to keep its policy rate steady for the rest of 2020. Interest rates are already at record-lows, and the economy is still on the very early stages of a recovery,” said HSBC.
The British bank pointed out a few things that would affect recovery such as how fast the government will revitalize economic activity while there are still concerns on local mobility data which it said is among the weakest in the region.
“Bank lending growth also continues to decline, despite low interest rates and ample liquidity in the market, which suggests that that corporate and individual borrowers remain wary of adding leverage given ongoing economic uncertainties. This means that a containment of the virus domestically and a re-opening of the economy are likely to be prerequisites before additional rate cuts lead to a pick-up in loan growth,” said HSBC.
Analysts at Union Bank of the Philippines, in the meantime, said that with an expected flat industry loan and asset growth for this year due to the pandemic, and with the weakened economy and slower credit demand, they also see the BSP not making any more moves to reduce the reverse repurchase rate (RRP) and the reserve requirement ratio (RRR).
“The bank expects the BSP’s RRP rate and RRR to be kept unchanged this year to give the economy some time to absorb the excess liquidity freed up earlier this year,” said UnionBank. The benchmark or RRP rate and RRR is at 2.25 percent and 14 percent respectively, after the BSP reduced it by 175 bps and by 200 bps.
In a statement Thursday, the BSP said the next policy stance will take into consideration the October inflation results of 2.5 percent which is higher than 2.3 percent in September. Another indicator it will consider is the third quarter GDP data in its assessment of the inflation and economic activity outlook.
The October inflation is within the BSP’s forecast for the month of 1.9 percent to 2.7 percent.
“The balance of risks continues to be on the downside due largely to the impact of domestic and global economic activity of possible deeper economic disruptions caused by the coronavirus pandemic,” said the BSP.