THE Bangko Sentral ng Pilipinas (BSP) is likely to keep policy rates at 2 percent in the first half given the current domestic liquidity level, according to First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P).
In their “The Market Call: Capital Markets Research” February issue, the think tanks are expecting the same overnight reverse repurchase facility in the near term.
“With M3 [domestic liquidity] growth still at a single-digit pace and a bit stuck around 8 percent year-on-year, and the economy just showing more signs of a robust recovery, we think BSP will keep policy rates in H1 [first half] despite a likely 50 bps [basis points] uptick in US Fed’s benchmark rate for the same period,” they explained.
Latest data from BSP showed that domestic liquidity rose by 9.8 percent year-on-year to P15.3 trillion in January. Month-on-month growth settled at 2.8 percent.
In a policy meeting last month, the Monetary Board (MB) kept the interest rate on the BSP’s overnight reverse repurchase facility at 2 percent.
The interest rates on the overnight deposit and lending facilities were likewise maintained at 1.5 percent and 2.5 percent, respectively.
BSP Governor Benjamin Diokno earlier said the MB observed that the domestic economic recovery may have gained traction, but uncertainty still lingers due to the potential emergence of new Covid-19 variants.
“Elevated global commodity prices, heightened geopolitical tensions, and the uneven pace of vaccinations across countries could dampen the outlook for global economic recovery,” he said.
“On balance, the Monetary Board deems it prudent to maintain the BSP’s accommodative policy stance given a manageable inflation environment and emerging uncertainty surrounding domestic and global growth prospects,” Diokno continued.
Meanwhile, the FMIC and UA&P study said that inflation may be manageable for most of this year.
“Based on 2012 base year [old base], we expected inflation to ease most of 2022 and average 3.7 percent in 2022 after allowing for elevated crude oil prices that spill over into other consumer goods and services. The change in the base year to 2018, but without detailed CPI [consumer price index] data prior to 2020, and should crude oil prices remain above $85/barrel could challenge our forecast,” the report said.
In February, the BSP forecast inflation to average 3.7 percent this year, higher than the previous 3.4-percent outlook, due to higher global commodity prices, oil products in particular.