THE Bangko Sentral ng Pilipinas (BSP) is expected to continue its “prudent pause” exercise in its monetary policy, despite the dismal performance of the local economy in the third quarter of the year, local economists said.
BSP Governor Benjamin Diokno, however, is expected to call for higher spending to spur economic activity.
The Philippines contracted 11.5 percent in the third quarter of the year, the Philippine Statistics Authority (PSA) announced on Tuesday. While this was a recovery from the 16.9-percent slump in the second quarter, market players expected a more muted decline during the quarter as quarantine restrictions were mostly eased in July to September.
According to Unionbank Chief Economist Ruben Carlo Asuncion, despite the slowdown, the BSP will not rush to ease rates in its next meeting, similar to what Diokno did in the early months of the pandemic.
“If you look at the fundamentals of the GDP [gross domestic product] numbers, construction and government spending were laggards because of the lockdowns in NCR [National Capital Region] in early August and the one in Cebu, and it is undeniable that third-quarter GDP growth was an improvement from the second quarter print,” Asuncion said.
“It also underscores [the] role government has in supporting the economy and growth of the macroeconomy in general especially in times of crisis. On initial evaluation after the third-quarter GDP data release, the likelihood of a continuation of the monetary policy pause, in my view, is higher,” he added.
Just last week, Diokno told reporters they are awaiting the third-quarter economic growth data of the country to complete the assessment for the monetary policy moving forward.
“The Monetary Board will consider the latest inflation number together with the 2020 third-quarter GDP data in its assessment of the outlook for inflation and economic activity for the monetary policy meeting on November 19, 2020,” Diokno earlier said.
The BSP has been aggressive in easing policy rates to support the economy, cutting its rates four times already during this year.
In February, their first meeting of the year, they cut their rates by 25 basis points as the threat of Covid-19 emerged in other countries. In March, just days after the first implementation of community quarantine in Luzon, the BSP cut its interest rates by 50 basis points. This was supplemented by another 50-basis-point cut in an off-schedule Monetary Board meeting in April, and another 50-basis-point cut in June.
In their last two meetings, the BSP moved to keep all interest rates unchanged.
This time, however, Diokno is expected to step back and let the fiscal side do the lifting.
“There has been an improvement, and the government has mentioned less stringent restrictions in the coming months that will greatly encourage the movement of people and hopefully more economic activity. I think, at this point, it is clear that BSP has done much and the fiscal side has to do its share of the economic lifting,” Asuncion added.
ING Bank Senior Economist Nicholas Antonio Mapa also told the BusinessMirror that while some pressure can mount on monetary authorities to react and do something to stem the downturn, Diokno has already called on fiscal spending to match the herculean BSP response.
“BSP shouldn’t fret and take a playbook from the Fed and renew calls for fiscal authorities to double up on spending,” the Mapa said.
The BSP Monetary Board is expected to have their monetary policy stance meeting next week, November 19. This is the second to the last scheduled meeting of the Monetary Board for this year.