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Philippines Monetary Policy December 2020

Philippines: Central Bank keeps rates steady in December

At its 16 December monetary policy meeting, the Central Bank of the Philippines (BSP) decided to keep the overnight reverse repurchase facility rate at 2.00%. Accordingly, the overnight deposit facility and the overnight lending facility rates—which establish the floor and the ceiling of the interest rate corridor—were left at 1.50% and 2.50%, respectively.

The Bank’s decision was likely aimed at evaluating the impact of past loosening. Rates are at a record low following a cumulative 200 basis points of cuts this year. Moreover, positive news on the vaccine front has brightened the global economic outlook somewhat, while domestic indicators suggest improving underlying dynamics in Q4, even though recent typhoons could temporarily dampen output. This meant immediate further easing was not warranted.

The next policy meeting is scheduled for 11 February.

In its communiqué, the Bank reiterated that it “remains committed to deploying its full range of instruments as needed”. As such, further easing is possible going forward if economic headwinds persist, with much depending on the evolution of the Covid-19 outbreak at home and abroad. While there is divergence among panelists, the Consensus is for broadly stable rates next year.

Analysts at Goldman Sachs state:

“As growth recovers and inflation rebounds, we expect BSP to keep policy on hold from here to at least end of 2021.”

Economists at United Overseas Bank concur:

“Our view is the probability for BSP staying paused through 2021 is higher than a rate cut, with expectations of a wider distribution of vaccines by 1H21, effective execution of larger 2021 national budget, and persistent negative real interest rate conditions. Fiscal support is also deemed more effective in revitalising growth recovery from the health crisis as compared to monetary policy. Hence, we expect BSP to hold RRP rate steady at 2.00% until end-2021.”

However, analysts at Nomura are notably more dovish:

“We maintain our forecast that it will cut its policy rate by another 50bp to 1.5% within Q1 2021. Our forecast is underpinned by our view of a fairly weak economic recovery given limited fiscal support, and the ongoing struggle to contain the local outbreak.”

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