FIRST Metro Investment Corp. (FMIC) is expecting the Bangko Sentral ng Pilipinas (BSP) to have another reduction in key policy rates and reserve requirement before the year ends.
The investment bank of Metrobank Group noted that while the Central Bank has already cut the policy rates several times this year, it is still possible that another one will take place to boost the economy.
“To help stimulate the economy, the BSP continued to apply an accommodative monetary policy, having cut policy rates four times in the first half of the year for a total of 175 basis points (bps),” the FMIC said.
Currently, the overnight reverse repurchase facility is 2.25 percent, while deposit and lending rates stand at 1.75 percent and 2.75 percent, respectively. This, after the Monetary Board trimmed interest rates by 50 bps in June.
Meanwhile, the firm also expects a 200-bp cut on banks’ reserve requirement from 12 percent to 10 percent.
Earlier this year, the BSP approved to slash the reserve requirements of universal/commercial banks and nonbank financial institutions with quasi-banking functions by 200 bps. The reserve requirement is the part of the total deposit balance that banks secure in the BSP’s vaults as reserves. Reducing it means banks have more available funds for borrowings.
Last month, the BSP reduced the reserve requirement ratio for thrift, rural and cooperative banks by 100 bps effective July 31. This is seen to release P10 billion worth of fresh liquidity infusion into the economy.
FMIC Chairman Francisco C. Sebastian said the low interest rates are seen supporting the infrastructure drive.
“I think this is the best time to spend when the interest rates are low and that will enable us to build infrastructure,” he said.
RCBC Chief Economist Michael L. Ricafort, in an e-mail to the BusinessMirror earlier, said that the low interest rates would benefit borrowers given the decrease in lending or financing costs as well. This could then boost the demand for loans, he added.
In June, however, the BSP reported that bank lending only grew by 9.6 percent in June, which is lower compared to 11.3 percent in the previous month.
The Central Bank blamed the slowdown on “weak domestic economic prospects and constrained economic activity following the imposition of quarantine measures to contain the Covid-19 outbreak.”
Image credits: Ed Davad