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By Luz Wendy T. Noble, Reporter
The Central Bank of the Philippines (BSP) bank cut unexpectedlymark rates to new all-time lows on Thursday, befifth reduction this year, citing continued uncertainty caused by a further increase in coronavirus cases worldwide and the impact of recent typhoons on the struggling economy.
On Thursday, the Monetary Board cut rates on BSP reverse repurchase facilities, loans and overnight deposits by 25 basis points (bps) to 2%, 2.5% and 1.5%, respectively.
“With a benign inflation environment and stable inflation expectations, the Monetary Board sees enough policy room for a reduction in the policy rate at this juncture to raise market confidence and nurture the country’s economic recovery amid increased risks. down for growth, “BSP Governor Benjamin E Diokno said in an online briefing.
The latest easing move followed a “prudent pause” by the central bank since its June meeting. The central bank has already cumulatively lowered interest rates by 200 bp this year.
“The Monetary Board assessed that there remains a critical need for continued policy support measures to boost economic activity and increase market confidence,” Diokno said.
Diokno said that uncertainty remains high amid the resurgence of coronavirus disease 2019 (COVID-19) cases around the world.
However, the Monetary Board also noted that the global economic outlook has moderated in recent weeks. At the same time, the Monetary Board noted that, while domestic production contracted at a slower rate in the third quarter of 2020, the moderation in business and household confidence and the impact of recent natural calamities could represent strong obstacles to the recovery of the economy in the coming years. months, ”he said.
A Business world last week’s poll showed beFive of the 16 analysts expected the BSP to cut rates by 25 bp.
BSP Deputy Governor Francisco G. Dakila, Jr., said the latest easing will provide support to accelerate the recovery of the economy by boosting bank loans.
“What this interest rate cut does is boost so that people are much more likely to have confidence to enter the financial system again, when interest rates are on the accommodative side,” said Dakila.
Despite the BSP rate cuts earlier this year, credit growth slowed to 2.8% in September, the slowest in more than 13 years or from 2.4% in June 2007, as banks tightened their credit standards while borrower confidence remained low due to the pandemic.
“So we emphasized that controlling the virus would be the most important factor that would lead to an upturn in demand for loans, but if that happens, the necessary liquidity is in the system,” said Dakila.
REVISED INFLATION OUTLOOK
Meanwhile, the central bank risesit called its inflation forecast for this year at 2.4% from 2.3% at the October meeting, Dakila said.
“We have revised it upwards by 0.1 percentage point due to the transitory impact of the higher than expected inFloridaaction in September at the end of this year, ”said Dakila, noting that higher inflation was observed in the food and non-alcoholic beverages component of the consumer price index.
On the other hand, the inflation outlook for 2021 and 2022 was reduced to 2.7% (from 2.8%) and 2.9% (from 3%), respectively, due to the slower than expected recovery in domestic activity, the fall in the crude prices and the strengthening of the peso.
For UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asunción, third-quarter gross domestic product (GDP) data may have been the crucial factor for the so-called rate cut.
“I guess the signs were on the wall: a lower-than-expected third-quarter GDP impression, a quintet of unexpected destructive storms, and a coronavirus that is still there. We expected a continuation of the prudent pause of the BSP, but it seems that a flood of warning signs may be too much to handle if a cut is not made, “he said in a text message.
GDP declined 11.5% in the third quarter, slightly better than the record contraction of 16.9% recorded in the April-June period.
Analysts said the near-term recovery prospects looked bleaker.
“Despite the new round of easing, we are not sure that bank loans will recover in the short term, given the declining growth prospects with high unemployment and still negative consumer confidence,” he said in a note. ING Bank NV Manila Senior Economist Nicholas Antonio T. Mapa. .
Meanwhile, Alex Holmes, an economist at Capital Economics, said the recovery prospects for the Philippines still depend on how well the government controls the spread of COVID-19.
As of Thursday, the Health department reported 1,337 new cases of COVID-19, bringing the total to 413,430.
“Since the virus is not yet under control, the restrictions will need to remain in place for longer, further slowing down the recovery. It seems unlikely that promising news about vaccine development will change the situation in the short term, “he said.
“Given the likely weakness of the economic recovery, we suspect that the BSP will cut rates even further next year.”
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