Philippines: Further easing to fight the pandemic – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assessed the recent decision by the central bank of the Philippines (BSP).

Key Quotes

“During its scheduled monetary policy meeting yesterday, Bangko Sentral ng Pilipinas (BSP) cut its overnight reverse repurchase (RRP) rate by 50bps to a new low of 2.25%. Accordingly, both the overnight lending and deposit rates were also reduced to 2.75% and 1.75% respectively.”

“After reopening parts of the economy in early June, the government has tightened back the lockdown in Cebu city and Manila amid increasing number of COVID-19 infections. The IMF expects Philippines GDP to decline 3.6% in 2020 (vs. its April estimate of -0.6%). This is in line with our expectations for the economy to suffer its deepest annual contraction since 1985 this year, at -3.5% (official forecast: -2.0% to -3.4%).”

“Inflation remains benign as the pandemic effect weakens demand. Headline CPI rose 2.1% in May, continuing a decelerating trend from 2.9% at the start of the year. The latest forecasts indicate that inflation is likely to settle near the low end of BSP’s 2%-4% target range for 2020 up to 2022.”

“Year-to-date, BSP has cumulatively reduced its RRP rate by 175bps and reserve requirement ratio (RRR) by 200bps. BSP Governor had earlier hinted that the central bank was content with the degree of monetary easing done to support the economy. However, with the continued rise in coronavirus infections and reinstatement of lockdowns, the pace of recovery is likely to be much slower-than-expected. Given real interest rates inching closer to zero, BSP has limited room to ease policy rates further albeit officials see room to accelerate the RRR cuts.”