An economist forecasts an unchanged policy rate for the Bangko Sentral ng Pilipinas (BSP) on Thursday, citing the need for monetary authorities to monitor any possible second-round effects of the elevated inflation rate.
In a report, ING Bank Manila senior economist Nicholas Mapa likened the BSP to the defense team of the American football team while the fiscal authorities make up the offense team.
“For the first half of the game, we can say that the defense (BSP) has held the fort, playing the toughest defense possible to keep the team (economy) from falling too far behind in the scoreboard. Despite their valiant efforts, a defensive team can rarely score points but we see how committed BSP is to keep the score close,” he said.
Last year, the BSP’s policy-making Monetary Board (MB) slashed the central bank’s key policy rates by a total of 200 basis points to cushion the impact of the pandemic on the domestic economy.
However, the rate of price increases is on the rise, with the January 2021 figure surpassing the government’s 2-4 percent target band until 2024 when it rose for the fourth consecutive month to 4.2 percent.
Mapa said, “BSP has had to contend with rising concerns about a possible rate hike in 2021 to quell price gains and bring back the headline number back to more normal levels.”
To date, the BSP’s key policy rates are at record-low. For one, the overnight reverse repurchase (RRP) rate is at 2 percent.
However, the real interest rate in the country is currently in negative territory because it is now below the inflation rate.
Citing earlier statements of BSP executives, Mapa expects the BSP rates to be kept at their current level for now.
He said “although concerns about negative policy rates are valid during more normal times, it appears that BSP officials will be more tolerant of negative real policy rates (NRPR)” as the government addresses the impact of the pandemic.
“The marching orders of BSP are apparent, get the economy on track at the soonest,” he added.
Mapa said, “we can not fault the BSP for playing staunch defense throughout the game just because the offensive team has sputtered.”
“BSP, will likely keep up the pressure and play the best defense they know, retaining its accommodative stance, ever hopeful that their counterparts on the offense can finally get their act together to score points and get back in the game. As such, we expect BSP to keep the policy rate unchanged on Thursday and as long as they can as they remain watchful for the possible buildup of second-round effects of inflation,” he added.