Monetary policy to remain accommodative

MANILA, Philippines — The generous monetary support unleashed by central banks around the world, including the Bangko Sentral ng Pilipinas (BSP), is expected to remain in place to support the global economy from the pandemic-induced recession, according to Moody’s Analytics.

In its latest global outlook titled “Recovery fraught with risk,” Moody’s Analytics senior economist for Asia-Pacific Katrina Ell said central banks are looking through elevated inflation and maintaining accommodative monetary settings amid the resurgence of COVID-19 infections.

For one, Ell said the Philippines and India are useful cases as inflation in both countries is above their respective central banks’ comfort levels mainly due to supply-side shocks.

“We expect that the generous monetary support unleashed during the crisis will remain in place as central banks do whatever is necessary to support the recovery. Interest rates are expected to remain low for the next few years and credit facilities unlikely to be wound down soon,” Ell said.

Inflation in the Philippines averaged 4.5 percent in the first quarter after easing to 4.5 percent in March, remaining above the two to four percent target by the BSP for the year.

The BSP has kept interest rates the same since the surprise 25-basis-point rate cut delivered on Nov. 19 last year. However, it recently raised its inflation forecasts to 4.2 percent this year and to 2.8 percent next year.

For this year, Moody’s Analytics is sticking to its 2021 GDP growth forecast for the Philippines of 6.3 percent, lower than the 6.5 to 7.5 percent target set by the Development Budget Coordination Committee (DBCC).

Ell said Moody’s Analytics sees the global GDP growing by 5.5 percent this year after shrinking by 3.7 percent last year.

However, she said divergence in recoveries would persist, depending on the control of infections and vaccine rollouts.