Deutsche sees BSP keeping policy rates till ’21
THE Bangko Sentral ng Pilipinas (BSP) is likely to keep key policy rates at the same level until next year, according to a study. The Deutsche Bank research noted in a report on Monday that the Central Bank is not seen changing its policy stance until the third quarter of 2021.
Currently, the overnight reverse repurchase facility is at 2.25 percent after the Monetary Board (MB) implemented a series of policy cuts—totaling 175 basis points—to inject liquidity into the weakening economy. Overnight deposit and overnight lending rates, meanwhile, stood at 1.75 percent and 2.75 percent, respectively.
The BSP had been trimming interest rates since the beginning of the year to aid the market, but changed its tune during the August monetary policy meeting. It took a “prudent pause” last month from releasing liquidity as the inflation is seen settling within the government target band of 2.04.0 percent until 2022.
The German multinational investment bank, in an earlier report, said it expected the BSP to bring down interest rates to 2.25 percent as the Covid-19 pandemic slows down the economy.
“With the economy contracting much more than the government expected, and inflation at the bottom of the Central Bank’s target band—and the currency strengthening— we think there is still more room for BSP to cut rates,” the bank said in June. At the time, key policy rates stood at 2.75 percent. Deutsche, meanwhile, observed that the Philippines is struggling to contain the coronavirus despite placing lockdown measures.
Still, the financial services firm noted that the country has been easing the mobility restriction to help pump the local economy.
“However, the tolerance for extended rigorous social distancing appears to be weakening, with new social-distancing regulations being in most places milder and imposed for shorter durations,” the bank said.
“India, like Indonesia and the Philippines, has yet to get the outbreak under control but pushed ahead with easing of lockdown measures nonetheless, allowing for a recovery of economic activity,” it added.
Metro Manila and other areas were recently placed under the more relaxed
general community quarantine for one month.
This is to help the economy by lessening disruptions in business activities. Still, protocols on social distancing and other safety guidelines are being followed to avoid further rise in Covid-19 cases.
“In India, Indonesia and the Philippines, social-distancing restrictions were lifted before the Covid-19 outbreaks had been at all contained—the economic cost was proving too great to bear—and new infections have, predictably risen faster,” Deutsche said.