Philippine central bank seen holding rates steady as recovery hopes dim

MANILA: The Philippine central bank is expected to leave its key interest rate steady on Thursday for a sixth straight meeting, as a new wave of COVID-19 infections darkens the outlook for the economy, a Reuters poll showed.

All 11 economists surveyed predicted the central bank will keep the overnight reverse repurchase facility rate at a record-low of 2.0% at its policy meeting, which will follow the release of second-quarter economic output data on Tuesday.

The economy likely expanded 10% in the June quarter from a year earlier, based on the median forecast in the same poll, compared with a record 17% contraction in the same period last year and a revised 3.9% slump in the first quarter.

Philippine central bank intends to keep rates low, plays down inflation risks

On Monday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno repeated the central bank's resolve to maintain its accommodative monetary policy for as long as needed to ensure a sustainable recovery.

Economists cited a low base effect and improved domestic demand for the likely rebound in second-quarter growth, as daily coronavirus cases declined in the period from a record peak in early April.

However, the economy likely contracted by 1.7% from the previous quarter on seasonally adjusted terms, after 0.3% growth in the first three months, based on forecasts from four economists.

The reimposition of lockdown measures in the capital Manila and several provinces this month, to prevent the spread of infections driven by the more transmissible Delta variant, has clouded economic prospects.

The Philippines recorded its highest single-day COVID-19 case increase in almost four months on Saturday.

"We believe there is no further room for BSP to ease... But with inflation moving within target, the central bank is likely to keep its policy rate unchanged this year," HSBC economist Noelan Arbis said.