Bengaluru, Feb 15 (BNA): The Central Bank of the Philippines will wait until the end of the year before raising interest rates from a record low 2.0% to support the uneven economic recovery from the COVID-19 pandemic.
With inflation remaining weak compared to advanced economies and growth in the Southeast Asian nation not yet returning to pre-pandemic levels, Bangko Sentral ng Pilipinas (BSP) will stick to its pessimistic stance, Reuters reported.
All 21 economists in the February 1-14 poll expected the BSP to leave its benchmark interest rate (PHCBIR = ECI) at 2.0% at its February 17 meeting.
This was in line with Governor Benjamin Diokno’s view that monetary policy will remain loose as long as needed to support growth and not necessarily follow the US Federal Reserve which is expected to raise interest rates next month.
While the Fed’s recent monetary policy tightening cycle has led to large capital outflows in emerging economies, which has weakened local currencies considerably, economists do not expect it to be repeated this time around.
“We don’t expect any policy changes from the BSP, at least for now. Governor Diokno ramped up his cautious tone after he eased inflation in January, indicating he did not want to ‘change course’ in the middle of the recovery,” wrote Robert Carnell, regional head of research For the Asia Pacific region at ING.
“However, the Fed’s pessimistic stance on the back of a hawkish Fed could translate into additional pressure on the Philippine peso in the near term.”
The Philippine peso has been relatively stable this year, depreciating only about 1% against the US dollar. A Reuters poll early last month showed that the peso would swing around the current rate this year.
The central bank was expected to raise the key interest rate to 2.50% by the end of 2022, followed by 25 basis points in the second quarter of 2023 and another 25 basis points in the July-September quarter, while raising interest rates to 3.00%.
Nearly half, seven of 15 respondents, expected a rate hike of at least 25 basis points by the end of the third quarter, including three who said it would come as early as April into June.
However, most survey respondents said the central bank will be on hold and watch before changing gears.
This cautious approach reflects the position of a few other central banks in Asia, including the Reserve Bank of India and the Bank of Thailand who were expected to maintain a favorable stance rather than try to cool inflation.
MI