Slower M3 growth factor for another BSP rate cut in ’21: analyst

An economist of the MUFG Global Markets Research forecasts an additional cut in the Bangko Sentral ng Pilipinas’ (BSP) key rates but this is projected to happen by 2021 when the growth of domestic liquidity (M3) has slowed to around 10 percent.


In a virtual briefing Thursday, Sophia Ng, MUFG Global Markets Research analyst, said she expects the central bank’s accommodative policy to remain until the next two years.


“The path going forward is rate cut. I think, in terms of M3 growth, I guess the BSP’s comfort level could be anything below 10 percent for M3 results then they could be comfortable with another rate cut,” she said.


To date, the BSP’s policy-making Monetary Board (MB) slashed the central bank’s key rate by a total of 175 basis points in a bid to help buoy the domestic economy from the impact of the pandemic.


Preliminary BSP data on the August 2020 M3 growth shows a 14.2 percent rise year-on-year, a slight change from the 14.7 percent in the previous month.


Domestic liquidity remains ample and the BSP ensures this to remain through the combination of policy rate cuts, as well as the reduction in banks’ reserve requirement ratio (RRR), among others, to boost economic activity amidst the pandemic.


The domestic economy entered a technical recession in the second quarter of the year when the 0.7 percent contraction in the first quarter was followed by a deeper -16.5 percent print in the following quarter.


Economic managers target this year’s output to be -5.5 percent but a recovery of between 6.5-7.5 percent is being aimed for 2021.


Ng said MUFG forecasts domestic output, as measured by gross domestic product (GDP), this year to be at -6.3 percent.


She said domestic demand is expected to remain soft since community quarantine is still hoisted over Metro Manila, which accounts for more than half of the country’s annual output.


For 2021, Ng said their growth forecast for the Philippines is higher than the government’s target at 7.2 percent.


Source: Philippines News Agency


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