The Philippine central bank would probably pause monetary easing this year until previous rate cuts lead to substantial credit growth, according to Standard Chartered Bank.
The Bangko Sentral ng Pilipinas is likely to bring down banks’ reserve requirements further instead to boost liquidity, Chidu Narayanan, an economist at the foreign bank, told an online news briefing on Friday.
“We think they will keep rates unchanged,” he said. “They have eased quite substantially so they will wait for the easing to pass through the economy.”
Mr. Narayanan noted that previous policy rate cuts had not really encouraged banks to lend more or companies to borrow. “It remains very soft particularly among corporates.”
The central bank’s policy-making Monetary Board slashed key policy rates by 200 basis points (bps) last year, bringing the overnight reverse repurchase, lending and deposit rates to record lows of 2%, 2.5%, and 1.5%, respectively.
It also cut the reserve requirements for big banks by 200 bps to 12%, and by 3% and 2% for thrift and rural lenders.
Despite this, outstanding loans of universal and commercial banks inched up by only 0.3% year on year to P8.978 billion in November, the slowest since September 2006, according to BSP data.
Monetary authorities might deliver “even further unconventional policy measures to keep conditions soft,” Mr. Narayanan said.
He said bank lending had not picked up substantially due to subdued business sentiment.
On the other hand, the central bank could lower banks’ reserve requirements by 100 bps this year to boost liquidity, mostly likely in the second half, Mr. Narayanan said.
State spending especially on infrastructure would probably become the main growth driver as consumption and private investments remain subdued, he added.
Standard Chartered expects the Philippine economy to have shrunk by 8.9% last year, within the government’s expectations of an 8.5% to 9.5% slump.
Economic output would probably grow by 6.1% this year, lower than economic managers’ forecast of 6.5% to 7.5% growth.
“We expect only a modest recovery in 2021,” Mr. Narayanan said. “Most of the recovery will be driven by public investments, with increased fiscal spending, particularly the P1.1-trillion earmarked for infrastructure investments,” he added.
Standard Chartered expects the economy to grow by 2.1% this quarter, by 15.7%, 5.5% and 2.4% in the following quarters. The local statistics agency will release growth figures for the last quarter on Jan. 28.
Growth risks include a potential resurgence of coronavirus infections and slow state spending growth, Mr. Narayanan said. “If cases remain quite high, that could weigh on sentiment.”
Inflation could average 3.5% this year and 3% next year. “We don’t see inflation as a massive risk for the Philippines” Inflation was 3.5% in December, bringing the full-year average to 2.6%.
Standard Chartered expects the peso to slightly weaken against the dollar to 49.50 by year-end after a strong base last year.