BSP has options to cut policy rates
Favorable inflation provides an enabling environment for growth. This gives room for the BSP to further ease monetary policy
While the rate at which the Bangko Sentral ng Pilipinas (BSP) borrows from and lends to banks currently sits below the latest inflation rate, lowering it further cannot be ruled out should the need for such arises.
This was learned from BSP governor Benjamin Diokno as he noted the expected benign inflation trajectory not only for 2020 but for the next two years as well, allowing them to trim the record-low rate of 2.25 percent further.
“Inflation is manageable at 2.5 percent in the first nine months of the year and is seen to settle between 1.75 to 3.75 percent this year, and two to four percent next year and in 2022,” Diokno said.
“Favorable inflation provides an enabling environment for growth. This gives room for the BSP to further ease monetary policy, in case needed,” he added.
The BSP has been quick in lowering its key interest rates in anticipation of the impact of the worldwide pandemic, executing a hefty 175 basis point cut yearto-date.
The lower interest rate was expected to encourage consumers to avail loans to fulfil their financing needs.
Latest data from the BSP revealed outstanding loans of banks as of end-August growing by 4.4 percent year-on-year, signifying demand for loans despite the effects of the pandemic.
Banking remains strong
While at it, Diokno said that the local banking system remains strong, entering the crisis with sufficient buffers to remain stable and outlast the crisis.
“The capital adequacy ratio of banks stood at 15.3 percent on solo basis and 15.9 percent on consolidated basis as of end-March, well above the 10 percent minimum requirement of the BSP and the 8 percent prescribed by Basel,” he explained.
“Banks’ liquidity coverage ratio stood at 171.4 percent as of endMarch, well above the regulatory minimum of 100 percent,” he added.
As such, the BSP chief assured that banks have ample capacity to absorb shocks.
Firmer GDP recovery
Citing positive economic developments including the higher purchasing managers’ index, peso appreciation and recovery in unemployment, Diokno said that “an even firmer economic recovery by next year” could be expected.
“Based on official government projections, GDP (gross domestic product) will swing from a contraction of 4.5 to 6.6 percent this year to a growth of 6.5 to 7.5 percent next year,” he said.
In its latest market call, the First Metro Investment Corp. and the University of Asia & Pacific Capital Markets Research pencilled its view of a better GDP in the third quarter of 2020.
“Third quarter GDP will decline but in single-digits. We expect the industrial sector to lead the nascent recovery in the following months as the government continues to relax quarantine restrictions,” they said.