Analysts see steady policy rates in 2021

MOST analysts believe the Bangko Sentral ng Pilipinas (BSP) will keep its accommodative monetary policy setting throughout the year to support Philippine economic recovery amid easing inflationary pressures.

Comments by Fitch Solutions, Nomura, Capital Economics and ING Bank Manila analysts followed the Thursday decision of the Monetary Board to keep the central bank’s overnight borrowing, lending and deposit rates at 2.00 percent, 1.50 percent and 2.50 percent, respectively.

In its third rate-setting meeting on Thursday, the Monetary Board noted the anticipated improvement in the domestic economy.

The monetary authorities also cut the BSP’s average inflation outlook for this year to 3.9 percent from 4.2 percent. This means that the average inflation is likely to hit the 2- to 4-percent target of the government.

According to Fitch Solutions, the Bangko Sentral’s decision to hold policy rates unchanged was in line with its expectations.

“Indeed, we maintain our forecast for the key policy rate to stand at 2.00 percent by end-2021 and see downside risks to our outlook for three 25bps (basis points) rate hikes in 2022, given the Philippines continued struggles with managing the Covid-19 (coronavirus disease 2019) pandemic,” it added.

Weak credit growth was also highlighted by the Fitch Group unit as a sign that monetary policy will need to stay accommodative for a long time.

Bank lending contracted further by 4.5 percent in March from the 2.7-percent drop a month earlier. The figure represented its fastest fall since May 2004’s 4.6-percent plunge.

“We also believe inflation will abate over the coming months, given our view that demand-side pressures are subdued and expectation for food price pressures to abate,” Fitch Solutions added, maintaining its average inflation forecast to 4 percent.