BSP rates are expected to remain stable until late 2022, according to Fitch Solutions.
Given that inflation continues high, Fitch Solutions does not expect the Bangko Sentral ng Pilipinas (BSP) to lower its key rates until late 2022 to assist economic recovery but does expect a decrease in banks’ reserve requirement ratio (RRR) as an easing tool.
The national risk and industry research company highlighted the BSP’s policy-making Monetary Board’s (MB) decision to hold key rates unchanged for the sixth straight rate-setting meeting on Thursday to assist boost the economy for as long as required in a report dated August 12.
“We anticipate the BSP to maintain its policy rate on hold at 2.00 percent until late-2022 when we expect the central bank to raise it 50 basis points to 2.50 percent by the end of the year,” Fitch Solutions stated.
To assist the domestic economy recover from the effects of the virus-induced pandemic, the BSP lowered its key rates by a total of 200 basis points in 2020.
It has also lowered banks’ RRR by up to 200 basis points in order to increase liquidity and promote lending, ensuring that economic activity remains stable.
Bank loan growth, on the other hand, has been negative for months.
This, according to Fitch Solutions, is due to weak domestic demand, which will likely recover to pre-pandemic levels by the end of next year.
The news came as mobility restrictions remained in place, with the most stringent level, enhanced community quarantine (ECQ), in effect in the National Capital Region (NCR) for two weeks until August 20.
“If the Delta variation spreads to other areas and national lockdowns continue, the BSP may be forced to relax monetary conditions even more to sustain development. For the time being, we believe any monetary easing will be achieved via the reduction of reserve requirement ratios rather than a reduction in the main policy rate,” it added.
The BSP may potentially increase its balance sheet to support fiscal stimulus measures and “cool domestic bond market volatility,” according to the article.
“As the Philippines confronts yet another wave of new cases, we think the BSP will maintain accommodating monetary conditions to help the local economy cope with the pandemic disruptions,” it said.