It is commonly anticipated that the Bangko Sentral ng Pilipinas (BSP) will briefly suspend monetary easing. And then, keep the policy rate at 2.25 per cent when its policy-making body meets on Thursday (Aug. 20) even as the COVID-19-induced slowdown pushes lower interest rates to promote economic recovery before the yearend.
“As it stands, the BSP has eased by 175 basis points (bps) cumulatively this year. We expect the BSP to stay on hold at the upcoming Monetary Board meeting [this] week, and we have no more rate cuts in our base case going forward,” Morgan Stanley Research said in an Aug. 14 report titled “BI and BSP to Stay Put.”
However, it said that more reductions in the reserve requirement ratio (RRR) is likely because policymakers have a proposal. It aims to cut this by 400 basis points this year (only 200 bps of reductions have occurred so far). In addition, it has noting BSP Gov. Benjamin E. Diokno ‘s remark recently that he did not see any clear need for further policy rate cuts and that interest rates could be sustained before the end of the year.
HSBC Explained the Research
For HSBC Global Research, the BSP would likely “keep its policy rate steady for now, preserving its next rate cut for any signs of further economic activity deterioration.”
As the matter of fact, the Philippines’ monetary authorities had been one of the most aggressive central banks globally in reducing interest rates. And also, providing additional liquidity to support the economy.
Moving forward, HSBC last Friday said it expected the BSP to cut key rates by 25 basis points during the fourth quarter on top of a 200-point reduction in bank reserves. It was up to 10 percent before yearend.
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