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After cutting key interest rates by 175 basis points this year, the Bangko Sentral ng Pilipinas (BSP) is likely to keep the currency configuration unchanged until 2021, as real interest rates have turned negative, said an economist from ING Philippines.
ING expects inflation for the rest of this year to remain at the lower end of the BSP inflation target band of 2 to 4 percent given depressed economic activity and a stronger Philippine peso against the US dollar, making it cheaper much imports in terms of local currency. .
Given that real policy rates remained negative (-0.15 percent), ING Philippines economist Nicholas Mapa said in a research note on Friday that the BSP will likely “keep the policy levers intact until well entered 2021 “.
Real interest rates turn negative if inflation exceeds the nominal interest rate, an unusual scenario that occurs during an economic recession.
This developed as the country’s annual inflation rate in August fell to 2.4 percent from 2.7 percent in July, bringing annual inflation to 2.5 percent. The inflation footprint for August was less than the consensus forecast of 2.7 percent.
“Price pressures eased in August, as demand-side price pressures faded much faster than expected with the economy now in recession. The capital region was subjected to a stricter level of quarantine during the first two weeks of the month, which may have further slowed already stymied demand, ”said Mapa.
Despite the surprise to the downside in the August inflation report, BSP Governor Benjamin Diokno hinted that there would probably be no adjustments in the monetary policy setting “for at least two quarters” and that he would probably refrain from reduce reserve requirement with flooded financial market. with liquidity.
The BSP has cut the reserve requirement so far by 2 percentage points this year to 12 percent.
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