BSP will keep rates at an all-time low: survey

By Luz Wendy T. Noble, Reporter

The Bangko Sentral ng Pilipinas (BSP) is expected to leave benchmark interest rates intact on Thursday as it reserves its measures in case the economic recovery is delayed, analysts said.

in a Business world In a survey conducted last week, 14 out of 15 analysts said they expect the Monetary Board (MB) to keep interest rates stable on their to befifth review of policy setting on October 1.

“I suspect that ‘sufficient liquidity’ would be the Floridaflavor of the discussion at the MB meeting this October. The demand side is obviously still lagging behind and the supply side is clearly very well supported, ”said UnionBank Philippines chief economist Rubén Carlo O. Asunción.

Security Bank Corp. chief economist Robert Dan J. Roces said the Monetary Board will likely consider the third-quarter gross domestic product (GDP) report before making policy adjustments.

After a record contraction of 16.5% in the second quarter, the government expects third-quarter GDP to be slightly better. It projects a fall of the economy from 4.5% to 6.6% this year.

The third quarter GDP report will be released on November 10.

“The interest pause is also to preserve monetary policy space in case benchmark expectations of a moderate recession in (the second half) of 2020 and a rebound in 2021 do not materialize,” said the chief economist of the Maybank Investment Bank, Suhaimi Bin Ilias.

BSP Governor Benjamin E. Diokno has said that the central bank’s policy measures have already infused around P1.4 trillion in liquidity, equivalent to 7.3% of the country’s GDP.

Despite this, bank loans have been tepid. In July, outstanding loans from large banks rose 6.7%, easing for the fourth consecutive month and slower than the 9.6% expansion in June.

This further suggests that a rate cut is unlikely on Thursday, and that the BSP is likely to use other tools to provide much-needed support during this crisis, said ANZ Research economist Kanika Bhatnagar.

“Insufficient transmission of policy rate cuts through loans is a bigger concern for now,” Bhatnagar said.

“We expect the central bank to provide support in other ways, such as facilitating government loans and implementing a loan moratorium to ease the burden of debt service on borrowers,” he added.

Under the Republic Law No. 11494, or the Bayanihan Law to Recover as One (Bayanihan II), banks and other covered institutions must implement a single 60-day moratorium on all loan payments.

The law also allowed the BSP to directly lend up to 30% or about P850 billion of its average income to the National Government, more than 20% (or about P540 billion) of its average income allowed under the New Bank Law. Central.

The BSP bought P300 billion worth of government securities with zero interest from the Treasury (BTr) under a repurchase agreement in March.

“We believe BSP will focus more on debt monetization for now after the limit for government loans was raised,” said Mitsubishi UFJ Group Global Research analyst Sophia Ng.

He also said that the BSP is likely to leave the reserve requirement ratio for banks unchanged, with the next easing likely to come in the first quarter of next year.

At its policy meeting on August 20, the MB kept rates on hold after a 175 basis point (bp) reduction earlier this year that reduced reverse repurchase facilities, overnight loans and deposits to historic lows of 2.25%, 2.75% and 1.75% respectively.

Meanwhile, the legal reserve for large banks was reduced by 200 bp to 12%, while the reserve requirement for rural and savings lenders was reduced by 100 bp to 3% and 2%, respectively. The Monetary Board may reduce the rate by up to 400 bp this year.

Diokno previously said that the current political stance could be maintained for the next few quarters. He said the BSP still has bullets when needed and is committed to a “long-term low inflation regime” and will continue to do what it has done “for perhaps another two years.”

Headline inflation in August stood at 2.4%, bringing the eight-month average to 2.5%. This is well within the 2-4% target set by the BSP, but is higher than the key interest rate of 2.25%.

Alex Holmes, an economist at Capital Economics, expects another relaxation on Thursday.

“We have targeted a 25 bp cut, given the weakness of the recovery. As it is, we have an additional rate cut scheduled after next Thursday, which would bring the policy rate to 1.75%, ”he said.

After October 1, the Monetary Board has two more meetings this year: November 19 and December 17.