Markets

Philippine central bank seen holding rates steady after surprise cut

  • The government now expects the economy to contract by 8.5%-9.5% for the year, worse than the previous forecast of a 5.5% decline.
Published December 17, 2020

MANILA: The Philippine central bank is expected to hold interest rates steady on Thursday, awaiting further signals on whether it needs to provide more policy support to the country's pandemic-hit economy, a Reuters poll showed.

All 13 economists surveyed predicted the Bangko Sentral ng Pilipinas (BSP) will leave the interest rate on its overnight reverse repurchase facility unchanged at a record low of 2.0% in its last policy meeting of the year.

"The BSP will most likely wait it out until the fourth-quarter GDP and other economic indicators are out to ascertain the pace of economic recovery and start easing again," Ruben Carlo Asuncion, Union Bank of the Philippines chief economist, said.

The BSP has slashed rates by a cumulative 200 basis points this year, including a surprise 25 bps reduction last month, making it one of the most aggressive central banks worldwide in policy easing.

It has also provided additional liquidity support to the economy by purchasing government securities and extending loans to the government.

Despite the unprecedented monetary policy support, the economy shrank more than expected in the third quarter on an annual basis, hit by weak demand and a slowdown in government spending.

The government now expects the economy to contract by 8.5%-9.5% for the year, worse than the previous forecast of a 5.5% decline.

Accordingly, many economists see further monetary easing next year, given the relatively weak fiscal support from the government to pull the economy out of its first recession in nearly three decades.

"BSP's monetary stance remains clearly dovish, supporting our forecast of further rate cuts early next year," said Euben Paracuelles, Southeast Asia economist at Nomura, who pencilled in an additional 50 bps cut in the first quarter.

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