BSP to maintain status quo until next year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is expected to maintain its accommodative monetary policy stance throughout next year as economic recovery remains lagging.

In its latest economic monitor, UK-based Pantheon Macroeconomics said the BSP will likely be among the central banks in emerging Asia to maintain the status quo through 2022.

A number of think tanks, banks and credit rating agencies have projected that the BSP may start raising interest rates next year.

Last week, the BSP kept policy settings untouched to support economic recovery. It has been a year since the BSP last tweaked its policy rates with a 25-basis-point cut in November 2020.

Pantheon senior Asia economist Miguel Chanco said the BSP would keep rates steady as economic recovery is behind the curve and growth is likely to slow next year.

“The first half looks set to be particularly challenging, with capital expenditure likely to hit the temporary brakes until the dust settles from the May 2022 presidential election,” Chanco said.

“Government spending will also naturally hit a wall during the transition, as history clearly suggests, leaving aside the fact that the Philippines is behind its peers in consolidating its COVID-era budget blowout,” he said.

Further, Chanco said consumption recovery would still be below average even with retreating virus headwinds.

Households are rebuilding the huge pile of savings lost over the past 18 months.

The BSP earlier warned that risks to inflation have shifted toward the upside for next year and is ready to respond to “potential second-round effects arising from supply-side pressures.”

The central bank also retained its 2022 and 2023 inflation projections at 3.3 percent and 3.2 percent, respectively.

“This shows that BSP is not worried at all about the risk of entrenched inflation,” Chanco said.

“We broadly agree, even though we expect near-term inflationary pressures to remain acute. We see 2022 inflation averaging higher, at 3.7 percent, but the headline should fall comfortably below the upper bound of the target range from July,” he said.