The central bank’s Monetary Board is not expected to move the key rate when it meets for its first policy review for 2021 on Thursday, according to Moody’s Analytics Asia Pacific.
“The Philippines’ central bank is expected to keep its key policy rate unchanged at two percent at its February meeting. A surprise 25-basis point rate cut was announced in November 2020, as the economy grappled with the demand shock from the intense COVID-19 outbreak and natural calamities that hit the economy,” said Moody’s in its latest economic preview for the region.
“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,” the rating agency’s commentary added.
The BSP’s Monetary Board, with eight policy meetings in a year, will have its first on Thursday, February 11, with most analysts predicting a “no action” decision. BSP officials, led by Governor Benjamin E. Diokno, have already indicated that they could keep current policy settings for some time despite a rising inflation which was as expected, citing temporary supply-side pressures.
“Caught between a rock and a hard place, BSP will likely keep policy rate unchanged on Thursday and possibly throughout 2021,” said ING Bank economist Nicholas Mapa on Monday.
Mapa said that at this point, a rate increase “would do little to make pork or chicken meat cheaper or the price of global crude oil fall" and it will not do good "with the economy still mired neck deep in recession". He said it would "derail the recovery efforts both by signalling a reversal in policy stance and make it even more difficult for cash strapped households and firms to access much-need funding."
"Governor Diokno is likely aware of the limits of monetary policy and will be more circumspect in his actions to make every policy move count,” said Mapa.
In January, inflation went up to 4.2 percent from 3.5 percent in December, surpassing both the BSP target of two-four percent and its forecast range of 3.2-4.1 percent of the month.
Mapa said an “inaction is action” with BSP signalling a “long pause.”
“(Governor) Diokno is fully aware that a rate hike at this juncture would do little to quell inflation while also inadvertently knocking out what little growth momentum is in the economy,” he said, adding that the BSP chief “appears ready to accommodate the first round of inflationary pressure and only consider acting should signs of second round effects (wage and transport fare adjustments) threaten a structural impact on the inflation path.”
Mapa said it is expected that BSP will not do anything rate-wise for some time considering the economy is still in a pandemic-induced recession.
He also noted the BSP’s negative real rates of two percent versus the inflation rate, currently at 4.2 percent in January while the BSP’s full-year forecast was at 3.2 percent.
Last Friday, Diokno said the uptick in the January inflation does not yet warrant a monetary policy response because supply-side shocks were temporary in nature. He said these supply-side shocks are best addressed by non-monetary interventions.