Economists expect the Bangko Sentral ng Pilipinas (BSP) to maintain key interest rates when the Monetary Board meets on Thursday, despite recent price spikes, which the central bank had considered temporary.
"While the inflation surprise may prompt a more cautious tone from the BSP at this meeting, with headline inflation slowly returning to the BSP's target band of 2 to 4 percent by early next year on our forecasts, and still stringent virus restrictions in the National Capital Region alongside slow vaccination progress likely to weigh on activity through yearend, we expect the BSP to keep policy rates on hold … and be patient in normalizing policy settings, keeping the policy rate on hold until late 2022," Goldman Sachs Economics Research said on Friday.
The "inflation surprise" Goldman Sachs referred to was the jump in August's headline rate to an above-target, 32-month high of 4.9 percent year-on-year, mainly due to expensive food, especially fish and vegetables.
In the same report, Goldman Sachs noted that new COVID-19 infections climbed in the Philippines recently, and it did not help that, together with Indonesia and Vietnam, vaccination progress lagged behind most of their neighbors in the Asia-Pacific region.
Dutch financial giant ING similarly projected the policy rate to be kept steady at a record-low 2 percent during the BSP's meeting on Sept. 23.
"BSP Governor Benjamin Diokno has vowed to retain accommodative policy settings as the latest COVID-19 wave and multiple lockdowns have been weakening the economy. Even so, the odds of additional BSP easing are very slim given the current unfriendly inflation backdrop," ING said in a Sept. 16 report.
Sharing a similar view, HSBC Global Research said on Friday that "Diokno has vowed to keep support in place 'for as long as needed' to revive the domestic economy," hence the overnight borrowing rate is seen remaining the same for the rest of this year up to 2022.
"We expect the central bank's next move to be a 100-basis point (bp) cut to the RRR next year—in line with its long-run aim to bring it down to single digits," HSBC said, referring to banks' reserve requirement ratio, currently at 12 percent.
On the other hand, London-based think tank Capital Economics maintained its nonconsensus view of an imminent interest rate reduction due to slow economic recovery.
"A spike in inflation in the Philippines means that Thursday's decision will be a close call, but given the worsening economic outlook, we are sticking with our nonconsensus forecast of a 25-bp cut," Gareth Leather, senior Asia economist of Capital Economics, and Alex Holmes, Asia economist, said in a report on Friday.
"We think that the deteriorating economic outlook following a surge in virus cases will be a bigger concern for policymakers. The government has so far held off from introducing a blanket lockdown, but the outbreak will still take a significant toll on an economy that was already around 9-percent below its precrisis level in the second quarter," Capital Economics said. INQ
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