Philippines: BSP seen on-hold for the current year – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting evaluate the latest monetary policy meeting by the Bangko Sentral ng Pilipinas (BSP).

Key Quotes

“As expected, Bangko Sentral ng Pilipinas (BSP) kept its overnight reverse repurchase (RRP) rate unchanged for the second straight meeting at 2.00% today (25 Mar). Accordingly, both the overnight deposit and lending rates were also left untouched at 1.50% and 2.50% respectively. It cited rising supply-driven inflation and lingering downside risks to the growth outlook as reasons suggesting that the prevailing monetary policy settings remain appropriate to facilitate the nation’s economic recovery.”

“Owing to the inflation outturn in Feb and elevated global oil prices, the central bank is now seeing headline inflation to breach the upper end of the target range of 2.0%-4.0% to average 4.2% this year (UOB forecast: 4.0%; 2020: 2.6%), with price pressures expected to taper off below 4.0% only in 4Q21 and towards the mid-point in 1Q22. Nonetheless, it ruled out the possibility of inflation overshooting the 5.0% level for the entire year of 2021 given uncertainties surrounding the pandemic and mass vaccination program.”

“That said, underlying inflation is presently seen muted given weak labour market conditions and nascent economic recovery. Although there is no evidence of any spillover effects of inflation at this juncture, BSP stressed that it will continue to be watchful for any signs of inflation becoming broader based to assess the need for appropriate monetary policy response.”

“Overall, the latest monetary policy statement is deemed neutral besides guarding against the build-up of demand price pressures that will eventually derail the nation’s economic revival, if any. This alongside the resurgence of COVID-19 infections lately in the country and potential delays in securing adequate vaccine doses suggest that the economic recovery still needs persistent policy support. Unless second round inflationary effects occur, BSP would remain on hold, in our view, keeping RRP rate at 2.00% until end-2021.”