Bank economists expect no change in BSP rates...
Lawrence Agcaoili (The Philippine Star) - September 28, 2020 - 12:00am

MANILA, Philippines — Economists expect the Bangko Sentral ng Pilipinas to keep interest rates steady this week as monetary authorities continue to assess the impact of the aggressive easing moves they implemented to soften the blow of the pandemic on the economy.

ING Bank Manila senior economist Nicholas Mapa said the Monetary Board is likely to   keep interest rates steady on Thursday as it continues to monitor the impact of the flurry of policy moves over the past few months.

The BSP has so far slashed the benchmark interest rate by a cumulative 175 basis points to an all-time low of 2.25 percent and lowered the reserve requirement ratios for big banks by 200 basis points, as well as for mid-sized and small banks by 100 basis points.

On Aug. 20, the BSP took a prudent pause and kept interest rates unchanged for the first time this year to allow previous monetary actions to work their way through the economy.

Mapa said recent comments from BSP Governor Benjamin Diokno point to the Monetary Board keeping rates unchanged after a prudent pause as real policy rates remain in the red.

“BSP will almost likely be on hold next week, with Gov. Diokno possibly hinting at the need for a more vigorous response from the fiscal side of the fence as the economic outlook darkens further,” Mapa said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the benchmark rate would likely remain steady at a record low of 2.25 percent during the rate-setting meeting of the Monetary Board on Oct. 1  and for the rest of the year.

“The key local policy rate would likely be unchanged since inflation rate remains higher, currently at 2.4 percent for the month of August, thereby making any further cut in policy rates challenging, as interest rate returns may not be enough to cover for the adverse effects of inflation,” Ricafort said.

Inflation eased to a three-month low of 2.4 percent in August from 2.7 percent in July, well within the two to four percent target set by the BSP.

Aside from keeping interest rates unchanged, Ricafort said the BSP may pause  from further lowering the level of deposits banks are required to keep with the central bank on Thursday.

“But any further cut in banks’ reserve requirements cannot be completely ruled out in the coming weeks or months, as the economy still needs all the support measures that it could get by way of further monetary easing measures with the penultimate objective of further reducing borrowing costs to help stimulate greater demand for loans that spur more investments, creation of more employment, and generate more economic activities,” Ricafort said.

Security Bank chief economist Robert Dan Roces said monetary authorities are likely to await the release of the gross domestic product (GDP) figure for the third quarter before they make any policy adjustments.

“The Monetary Board will likely consider third quarter GDP before any policy adjustments. Inflation will remain benign with some slight upside risks on the back of increased consumption,” Roces said.

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