By Luz Wendy T. Noble, Reporter

THE Bangko Sentral ng Pilipinas (BSP) will likely keep benchmark rates untouched at its review this week, although some economists are pricing in another easing in the latter part of 2020 when the extent of the pandemic’s economic impact becomes clearer.

Ten out of 13 analysts polled by BusinessWorld expect the central bank to leave rates steady when the policy-making Monetary Board meets on Thursday (June 25).

“With public spending already picking up and more fiscal support underway, the BSP is likely to take a pause to assess the impact of this spending, previous measures to improve systemic liquidity and interest rate cuts,” Thatchinamoorthy Krshnan, an economist from Oxford Economics said.

Noelan Arbis, an economist from HSBC Global Research, said fiscal stimulus is “more necessary” at this point, rather than another rate cut.

Several economic stimulus measures designed to address the impact of the pandemic are still pending in Congress. These include the P1.3-trillion Accelerated Recovery and Investment Stimulus for the Economy of the Philippines (ARISE) bill, and the P1.5-trillion COVID-19 Unemployment Reduction Economic Stimulus 2020 (CURES) measure.

Analysts’ expectations on policy rates (June 25)

Economists also said current liquidity levels seem to have picked up already after the BSP implemented measures to unleash more funds into the financial system.

BSP’s latest data showed domestic liquidity or M3, which is the broadest measure of money supply in an economy, rose by 16.2% year on year in April, quicker than the 13.3% pace in March. This is also the fastest since the 16.4% growth logged in September 2014.

“Adjusting it (policy rates) again might cause unnecessary impacts on liquidity which may do more costs than benefits,” Asian Institute of Management economist John Paolo R. Rivera said.

So far this year, the BSP has slashed rates by 125 basis points (bps) in an effort to shield the economy from the pandemic’s impact. This has reduced the key policy rate or overnight reverse repurchase as well as lending and deposit rates to record lows of 2.75%, 3.25%, and 2.25%, respectively.

The BSP implemented an off-cycle 50-bp cut on April 16, in the midst of the Luzon lockdown. The scheduled May 19 meeting was canceled.

For University of Asia and the Pacific economist Victor A. Abola, there will likely be a pause in easing on Thursday, but expects a “cut next meeting when the real bad numbers for Q2 start coming out.”

Mr. Abola cited recent signals of a pause in easing from BSP Governor Benjamin E. Diokno.

Earlier this month, Mr. Diokno said they are “happy” with “where the current policy rate is” but assured the BSP continues to have ammunition ready when things get worse.

“Will there be a rate cut in the June to August meeting? We’re looking at it and we’re looking at information,” Mr. Diokno said early Monday in an interview with ABS-CBN News Channel.

After June 25, the central bank’s next policy-setting meeting is scheduled on Aug. 20.

The economy contracted by 0.2% in the first quarter, and is expected to fare even worse in the second quarter. The government’s projections show gross domestic product will shrink by 2-3.4% this year.

Meanwhile, three economists expect a rate cut of 25 bps at Thursday’s meeting, given the benign inflation environment and the widening impact of the COVID-19 pandemic on the economy.

“While BSP Governor Diokno’s recent comments suggest the bank may save its ammunition for later, we believe earlier action remains likely given softening inflation and downside risks to growth. A 25-bp rate cut remains on the table at the [central] bank’s upcoming meeting,” Jiaxin Lu, an economist at Continuum Economics, said.

Inflation in May was at a six-month low of 2.1% on the back of lower food and transport prices due to the lockdown. This is slower than the 2.2% in April as well as the 3.2% seen a year earlier. It brought average inflation from January to May to 2.5% so far.

The BSP’s inflation target for the year is 2-4%, while it gave a 1.75-3.75% projection taking into account the impact of the crisis.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa sees possible easing as part BSP’s efforts to further support economic recovery.

“Economic data suggests that the Philippines will enter a recession in Q2 and almost all data points to a loss of potential output due to the coronavirus lockdowns,” he said.

A rate cut on Thursday will be a “final move in terms of rate cuts for this year,” Mr. Mapa said, adding that cuts on the reserve requirement ratio (RRR) is also likely to be on the side given the rise in liquidity.

The BSP this year has slashed reserve requirement ratio for universal and commercial banks by 200 bps to 12% in a bid to boost liquidity during the lockdown. Reserve requirement for rural and thrift banks were kept at four percent and three percent, respectively.

The Monetary Board has authorized Mr. Diokno to cut RRR by up to 400 bps this year.