MONETARY AUTHORITIES have leeway to reduce rates by a further 25 basis points (bps) this year after the central bank said it is observing a “prudent pause” to judge the impact of policy on the economy’s re-opening, Mitsubishi UFJ Financial Group said.
“We hold the view that should growth deteriorate, there is room for another 25 bps (basis points) cut in the overnight reverse repurchase rate which would take it a new record low of 2%,” said Leong Sook Mei, the group’s ASEAN Head of Global Markets Research.
The central bank on Thursday maintained its overnight reverse repurchase, lending, and deposit facilities at 2.25%, 2.75%, and 1.75%, respectively.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the benign inflation environment and some early signs of economic recovery after the easing of restrictions afforded a “prudent pause” in policy actions.
The central bank’s decision was in line with a BusinessWorld poll last week where a majority or 11 out of 16 economists expected key rates to be maintained, taking their cue from earlier signals from Mr. Diokno, who had said there was “no compelling reason” for immediate further easing.
“The fits and starts, of opening than re-imposition of restrictions and relaxation again, will have implications for economic activity and consumption,” Ms. Leong said.
“The premise of a final cut for this year will emanate from growth exigencies,” she added.
The economy is officially in a recession after the 0.7% and 16.5% contractions in gross domestic product in the first and second quarters.
Ms. Leong said Mr. Diokno’s rhetoric suggests the prudent pause is a way for the BSP to retain some ammunition should the pandemic continue to pose economic risks.
Ms. Leong said the BSP is the only ASEAN central bank aside from Indonesia that has resorted to unconventional policy options.
“As at Aug. 10, the BSP has bought P500 billion of government bonds from the secondary market on top of P300 billion directly from the Treasury under a three-month repurchase agreement,” Ms. Leong said.
In March the BSP purchased P300 billion worth of government securities through a repurchase agreement with the National Treasury. — Luz Wendy T. Noble