Fitch Solutions discounts any reduction in the key rates of the Bangko Sentral ng Pilipinas (BSP) until late 2022 to further support economic recovery, given that inflation remains elevated, but projects a cut in banks’ reserve requirement ratio (RRR) as an easing measure.
In a report dated August 12, the country risk and industry research firm cited the decision of the BSP’s policy-making Monetary Board (MB) to keep key rates steady for the sixth consecutive rate-setting meeting on Thursday to help buoy the economy for as long as needed.
“We at Fitch Solutions forecast the BSP to keep its policy rate on hold at 2.00 percent through to late-2022, when we expect the central bank to hike 50 basis points to 2.50 percent by end-2022,” it said.
The BSP cut its key rates by a total of 200 basis points in 2020 to help lift the domestic economy from the impact of the virus-induced pandemic.
It has also reduced banks’ RRR by as much as 200 basis points to boost liquidity and further encourage lending activities to ensure that economic activities remain robust.
However, bank lending growth has been on the negative for months now.
Fitch Solutions attributed this to the soft domestic demand and forecast its likely return to pre-pandemic levels by the later part of next year.
The report came as movement restrictions remain in place, with the strictest level, the enhanced community quarantine (ECQ), being implemented for two weeks in the National Capital Region (NCR) until August 20.
“A spread of the Delta variant to other regions and prolonged nationwide lockdowns could even prompt the BSP to ease monetary conditions further to support growth. For now, we think any monetary easing would come via the lowering of reserve requirement ratios rather than a cut to the key policy rate,” it said.
The report further cited the BSP could also expand its balance sheet to support fiscal stimulus policies and “cool domestic bond market volatility.”
“As the Philippines faces another wave of new cases, we believe the BSP will keep monetary conditions on hold to provide accommodative monetary conditions to support the domestic economy through the pandemic disruptions,” it added.
Source: Philippines News Agency
