July 6, 2021

An economist predicts that the BSP rate will be adjusted by the middle of 2022

In order to continue to assist the local economy recover from the effects of the pandemic, an economist predicts that the Bangko Sentral ng Pilipinas (BSP) would hold key interest rates constant until mid-2022, with a potential rate adjustment by that time.

This is despite the fact that inflation has remained high despite the slowdown in June to 4.1 percent from 4.5 percent in the preceding three months.

So far, the average rate of inflation has been 4.4 percent, which is still higher than the government’s goal range of 2-4 percent through 2023.

Nicholas Mapa, the senior economist at ING Bank Manila, highlighted BSP Governor Benjamin Diokno’s remark that the monetary authorities were prepared to maintain an accommodating posture for at least another year in order to aid the country’s economic recovery.

According to him, the BSP has looked beyond the six-month inflation goal violation, citing the necessity to provide stimulus during a period of economic hardship, and slowing inflation would ease some pressure on the central bank to raise policy rates in order to fight inflation.

After accelerating to 4.2 percent in January and rising to 4.7 percent the following month, the pace of price rises exceeded the target range last year.

Inflation is expected to decrease in the second half of the year, as meat prices return to normal levels and authorities allow for greater import volumes of the item, according to Mapa.

He also anticipates that the effect of social distancing measures on transportation expenses and other services would diminish in the coming months, “offsetting a predicted increase in utility and fuel costs due to the rise in global oil prices,” according to the report.

In the face of expected inflationary pressures to return to goal, the BSP is expected to maintain policy rates at 2 percent for the remainder of 2021 and only contemplate modifying policy by mid-2022, according to the economist.

Its policy-making Monetary Board reduced the central bank’s main interest rate by a total of 200 basis points last year in order to cushion the domestic economy from the effects of a virus-induced epidemic.

It also reduced the reserve requirement ratio for banks by as much as 200 basis points in order to guarantee that banks have the liquidity they need to boost borrowing and maintain a healthy domestic economic environment..

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