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BSP is likely to keep rate at record low — Moody’s unit

The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, will likely keep the benchmark interest rate at a record low of 2 percent this week as the country continues to grapple with the prolonged impact of the COVID-19 pandemic, Moody’s Analytics, which operates independently of the Moody’s Investors Service, said Monday.

“The Philippines’ central bank is expected to keep the benchmark policy rate steady at 2 percent in its June announcement. The near-term prospects remain worrisome for the Philippines as the country copes with an intense domestic outbreak of COVID-19, which has necessitated the extension of restrictions in the capital city and nearby provinces until the end of June,” it said in a report.

Moody’s Analytics said that while Bangko Sentral responded to the crisis with rate cuts and substantial liquidity easing measures, “it is expected to retain ammunition for now and delay further action until restrictions are eased and sectors can respond to new stimulus.”

The board is scheduled to meet on June 24 for policy setting decision. On May 12, the Monetary Board kept the policy rate at 2 percent, on expectation that inflation rate would remain manageable.

BSP Governor Benjamin Diokno said last week the possibility of an interest rates hike by the US Federal Reserve would not have any significant impact on the Philippines because of the country’s solid and strong macroeconomic fundamentals.

Diokno assured that local monetary authorities would be ready if the Fed decided to increase its interest rates sooner, saying “we could do a lot of measures [on this].”

He said the accommodative monetary policy and liquidity-enhancing measures of the BSP continued to support the domestic economy amid the health crisis by fostering favorable credit conditions and the orderly functioning of the government securities market.

The BSP’s liquidity-easing measures released P2.2 trillion (equivalent to 12.1 percent of gross domestic product) into the financial system. These measures included the 200-basis point cumulative reduction in policy rate in 2020, reductions in reserve requirement ratios, purchases of government securities in the secondary market, and provisional advances to the national government.

Diokno said with ample liquidity in the financial system, domestic interest rates gradually declined over the past several months, even as lending activity remained affected by banks’ risk aversion on concerns over asset quality, profitability and the broader economic outlook.

He said the prevailing stance of monetary policy remained anchored on the BSP’s assessment of a manageable outlook for inflation over the next two years.

Inflation in May settled at 4.5 percent.

Topics: Monetary Board , Bangko Sentral ng Pilipinas , BSP , Moody’s Analytics
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