February 13, 2022 | 00:00
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is expected to keep interest rates at historic lows for now despite the risk posed by steadily rising global oil prices, economists said.
The BSP Monetary Board (MB) will hold its regular policy meeting on Thursday, February 17.
Security Bank chief economist Robert Dan Roces said the MB would likely leave key interest rates unchanged at its first rate-setting meeting for this year, but would closely monitor the direction of market prices. oil as a major upside risk to inflation.
“But with inflation still likely within the near to medium-term target, the Monetary Board could afford to remain dovish for now, despite significant upside risks posed by global crude prices,” did he declare.
UnionBank Chief Economist Ruben Carlo Asuncion said manageable inflation and steady recovery from the recession gave the BSP enough room to maintain its accommodative and expansionary monetary policy.
“After more than four consecutive quarters of GDP (gross domestic product) growth, the National Capital Region close to coveted herd immunity and manageable headline inflation, we expect BSP to maintain its current monetary policy during of the next meeting of the Monetary Council,” said Asunción.
However, the UnionBank economist expects the BSP to finally initiate interest rate normalization from the second half of the year or later this year.
Asuncion said the central bank had decided to wait again before finally withdrawing its support from the second half, as BSP Governor Benjamin Diokno made it clear that there were looming uncertainties surrounding the national economic recovery in due to the pandemic.
Alvin Arogo, an economist at the National Bank of the Philippines, said the central bank would keep policy rates unchanged despite additional pressure on the US Federal Reserve to raise interest rates.
“While the BSP cannot completely ignore the impending interest rate hikes by the US Fed, it will nonetheless base its decision primarily on the trajectory of the country’s GDP,” he said.
As the economy begins to recover lost ground in the third quarter, Arogo believes BSP would be comfortable to start tightening the monetary environment by mid-year.
“As such, we believe the BSP will likely begin its rate hike cycle on June 23, which will be the second meeting of the Monetary Board after the May 9 election,” Arogo said, adding that he expects two 25 basis point rate hikes this year. .
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the reduction in inflation would help justify the relatively accommodative monetary policy in the country given the economy’s need for greater support measures to help recover. support the country’s economic recovery and also better respond to the recent restrictions caused by the increase in new COVID cases in January.
Inflation fell to a 15-month low of 3% in January from 3.2% in December. The consumer price index (CPI) has fallen steadily since peaking at 4.4% in August last year to its lowest level since the 2.3% recorded in October 2020.
However, Ricafort said that the possible rate hike by the US Fed by early March and possible further rate hikes later in 2022 could lead to some increase in local policy rates given the need to maintain differentials. comfortable interest rates with the United States and other developed countries. .
For now, he said the lack of additional funding for fiscal stimulus would still support the recent accommodative monetary policy.
In 2020, the BSP cut interest rates by 200 basis points, bringing the benchmark rate down to an all-time low of 2% as part of the regulator’s COVID response measures.
In its weekly outlook, London-based Capital Economics said monetary policy in the Philippines would remain loose throughout the year.
“We expect the central bank of the Philippines to leave rates unchanged on Thursday and signal that they are in no rush to start tightening,” said economist Alex Holmes, adding that “rates will likely remain unchanged for as long as possible.” throughout this year”.
The market consensus is that the BSP will raise rates by up to 50 basis points in 2022.
Gross domestic product (GDP) in the fourth quarter grew stronger than expected at 7.7% year-on-year, lifting 2021 growth to 5.6%, also above government targets.
However, Holmes said there was still a long way to go before the economy recovered.
“We estimate that production is still 14% below its pre-crisis trend. The central bank will probably want to maintain its supportive policy,” he said. – Louise Maureen Simeon