July 15, 2021

An economist suggests that the BSP rate may be lowered again

An analyst has suggested that the Bangko Sentral ng Pilipinas (BSP) may reduce key rates again by August this year to demonstrate its readiness to assist the economy’s recovery.

During the virtual briefing of the First Metro Investment Corporation (FMIC) on Wednesday, Dr. Victor Abola of the University of Asia and the Pacific (UA&P) remarked, “BSP really has space for additional relaxing simply to show that they’re ready to assist economic rebound onto a quicker track.”

By the end of 2021 or the first quarter of 2022, he expects monetary authorities to begin unwinding monetary policy measures that were adopted from 2020 to assist buffer the domestic economy from the pandemic’s effect.

“(Monetary authorities may begin to ease) as soon as they observe the acceleration in growth returning to our previous growth path,” he said.

Last year, the BSP’s policy-making Monetary Board (MB) cut the central bank’s benchmark rates by a total of 200 basis points to stimulate bank lending and consumer and corporate borrowing, as well as to keep economic activity strong.

The Board also lowered banks’ reserve requirement ratio (RRR) by up to 200 basis points and permitted banks to lend to micro, small, and medium-sized businesses (MSME) for a limited time as RRR compliance.

When asked about a potential BSP decision on RRR, Abola dismissed any change thus far.

“That will be put on wait because every change has a huge effect, not only in terms of numbers but also in terms of behavior,” he said.

Domestic liquidity, or M3, is declining, according to Abola, and this “reflects the banks’ insufficient lending.”

M3 growth fell to 4.7 percent in May, down from 5.2 percent the previous month.

Since December of last year, bank lending has been slowing, although the pace of decrease in May was 4 percent, compared to a 5-percent contraction the month before.

The decrease in bank lending growth has been ascribed by monetary authorities to financial institutions being cautious about providing loans due to the effect of the epidemic on borrowers.

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