Inflation,
recovery in economic activity as more segments of the economy move towards less stringent quarantine measures,” Thatchinamoorthy Krshnan, an economist at Oxford Economics, said.
For Mitzie Irene P. Conchada, an economist from the De La Salle University, the transition to general community quarantine is likely to boost consumer demand as well as investor confidence.
“The BSP might have to wait to see the impact of slowly opening up the economy before adjusting policy rates,” she said.
UnionBank’s Mr. Asuncion said the presence of some inflationary pressures may push the BSP to consider the use of its liquidity tools and likely hold off rate cuts in the second quarter.
On the other hand, some analysts say the central bank’s recent signals as well as the continued benign inflation point to a possible rate cut, although reserve requirement ratio (RRR) is likely to be untouched.
“BSP is expected to cut policy rates by 25 basis points at the June meeting given [BSP Governor Benjamin E.] Diokno’s recent dovish comments,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said.
“Easing inflation will provide further room for the BSP to ramp up its monetary stimulus amid a weakening economy,” Continuum Economics’ Ms. Lu said.
The BSP has taken a pause in easing after aggressively slashing rates by a total of 125 basis points from February to April, which brought down the overnight reverse repurchase to a record low of 2.75% in order to provide support to the economy during the crisis. Lending and deposit rates have likewise been trimmed to 3.25% and 2.25%, respectively.
On the other hand, the RRR for big banks has been cut by 200 basis points in April to 12% to provide liquidity during the lockdown. Reserve requirements for thrift and rural banks were maintained so far at four and three percent, respectively. The Monetary Board said it can cut RRR by up to 400 bps for the whole of 2020.
The next rate-setting meeting of the Monetary Board is scheduled on June 25.