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Interest rates seen to stay low this year
In a report, Fitch Solutions said the BSP is likely to keep the benchmark interest rate at a record low of two percent this year despite the rising risks to economic recovery.
STAR/File

Interest rates seen to stay low this year

Lawrence Agcaoili (The Philippine Star) - May 16, 2021 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is seen keeping an accommodative stance over an extended period of time as the loan disbursements of banks continued to shrink amid the COVID-19 pandemic, according to Fitch Solutions Country Risk & Industry Research.

In a report, Fitch Solutions said the BSP is likely to keep the benchmark interest rate at a record low of two percent this year despite the rising risks to economic recovery.

“We maintain our forecast for the key policy rate to stand at two percent by end-2021 and see downside risks to our outlook for three 25-basis point rate hikes in 2022 given the Philippines’ continued struggles with managing the COVID-19 pandemic,” it said.

The research house said the surge in new COVID-19 infections and the lockdown measures implemented from late-March and through May in the National Capital Region and adjacent provinces (NCR Plus) would weigh substantially on domestic demand and threaten the longer-term outlook for the economy, given lost income, prolonged business disruptions and unemployment.

“We highlight weak credit growth as a signal that monetary policy may need to remain accommodative over an extended period time,” Fitch Solutions said.

Latest data from the BSP showed loan disbursements by universal and commercial banks shrank for the fourth straight month to 4.5 percent in March, from 2.7 percent in February, as the banking sector remained risk averse and due to weak demand from borrowers.

The BSP said credit activity remained low on banks’ tighter lending standards as the resurgence in coronavirus cases dampened the domestic economic outlook.

The BSP has kept interest rates steady since the 25-basis point rate cut on Nov. 19, 2020 to support a faster recovery from the pandemic-induced recession.

Fitch Solutions recently slashed its GDP growth forecast for the Philippines to 5.3 percent but maintained its inflation forecast at four percent for this year.

“We will be watching the Philippines’ COVID-19 containment efforts and vaccination program. If the country continues to struggle with the outbreak we could revise our economic growth outlook lower and with it, our outlook for policy hikes in 2022. In particular, if the weak credit data continues through 2021, monetary policy conditions may have to be eased further,” it said.

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