July 6, 2021

The BSP is expected to maintain its accommodating stance without introducing further stimulus measures

Although inflation has decelerated to 4.1 percent since June, the Bank of the Philippines’ (BSP) accommodating monetary policy is likely to stay unchanged, as the economy continues to grow without the imposition of further stimulus measures.

In a report released on Tuesday, Rizal Commercial Banking Corporation (RCBC) Chief Economist Michael Ricafort said he expects the BSP to maintain its record-low overnight reverse repurchase (RRP) rate of 2 percent for the foreseeable future, as well as a possible reduction in banks’ reserve requirement ratio (RRR) because the economy is in desperate need of these measures.

According to him, the economy still requires all the assistance it can get to help it recover from the Covid-19 (coronavirus disease 2019) pandemic, particularly in light of the negative economic effects of the 1.5-month lockdown measures in the NCR (National Capital Region) Plus that have been in effect since the latter part of March 2021.

Due to the government’s decision to be cautious in its spending to address the effects of the epidemic, the BSP has taken on a significant amount of responsibility for the economy since last year. According to economic managers, this is essential since no one knows when the pandemic will be finished.

To promote greater lending by banks and more borrowing by companies and individuals, the central bank reduced its main policy rates by a total of 200 basis points in 2018.

Additionally, the risk-based reserve requirement (RRR) of banks has been reduced by as much as 200 basis points in order to guarantee that financial institutions have sufficient liquidity to expand their lending operations.

In the face of persistently high inflation, monetary authorities have reaffirmed the central bank’s desire to maintain an accommodating monetary policy in order to aid the economy.

At 4.4 percent on average in the first half of this year, inflation was still higher than the 2-4 percent government’s goal range for the time being.

Economic forecasters predict that inflation will remain high until the third quarter of this year, with the full-year average expected to be 4 percent.

Costa predicts that inflation will fall below 4 percent by July, but will increase and peak by September or October owing to the onset of the typhoon season and the influence of base effects on consumer prices.

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