Philippine central bank keeps interest rate unchanged at 2 pct

The Philippine central bank kept its overnight reverse repurchase rate on hold at 2 percent today, as expected. Governor Diokno noted the uplifted global business and consumer sentiment over the commencement of vaccine delivery in some economies. Nevertheless, he also acknowledged the muted global activity in recent months as several European nations reinstated partial movement restrictions to manage a resurgence in Covid-19 cases.

The Governor, as well as the Deputy Governor, highlighted the crucial role of fiscal policy in strengthening economic growth. The latter noted that while monetary policy is most effective in the ‘first phase’ of crisis by injecting enough liquidity into the system, fiscal policy has to spearhead the effort later.

The BSP revised its inflation expectations based on transitory gains in food prices on the back of supply disruptions because of typhoons and African swine fever. The BSP anticipates higher inflation at 2.6 percent in 2020 and 3.2 percent in 2021. However, it expects inflation to ease in the second half of 2021, partially due to the higher base in 2020.

“Notwithstanding the improvement in domestic sentiment, the Philippine economy continues to face multiple headwinds to growth – weak export growth, slack in labour market, returning overseas workers and muted consumer demand. The economic recovery has a long way to go and therefore, in our view, the rate cut cycle is not yet over, with another 25bps cut likely in Q1 2021”, added ANZ.