The BSP maintains a key rate of 2%


Photo courtesy of Bangko Sentral ng Pilipinas Facebook page

MANILA, Philippines — A patient Bangko Sentral ng Pilipinas (BSP) is likely to keep the policy rate at the current record high of 2% at this year’s first monetary policy meeting on Thursday (February 17th), which would come amid slowing l inflation but still fragile economic growth prospects.

“For now, given the still-nascent recovery and inflation back in the target range, we expect the BSP to keep policy rates unchanged,” Goldman Sachs Economics Research said in a Feb. 11 report.

“As the year progresses, as activity continues to improve, inflationary pressures rise and global risk-free rates rise, we expect BSP to tighten policy parameters by raising policy rates once in the second half of 2022,” Goldman Sachs said.

The investment banking giant noted that while “growth rebounded strongly in [end-2021] as the country eases restrictions, slightly tighter Omicron restrictions may slow momentum in early 2022.”

Headline inflation in January decelerated to 3% year-on-year, the slowest rate of increase in commodity prices in 14 months.

In a report released on Monday (February 14), think tank Moody’s Analytics said the BSP was “expected to stick to monetary policy” at this week’s meeting.

“BSP will be on the side of central banks this year who will feel no real pressure to normalize policy, in part because the economy has endured its fear of inflation in 2021,” said Miguel Chanco, senior economist at Pantheon Macroeconomics for Asia, also in a report on Monday.

“The headline rate should remain comfortably within BSP’s 2-4% target range this year,” Chanco added.

For HSBC Global Research, “the pandemic situation remains a major obstacle to growth, and the BSP is likely to remain on hold to support growth despite rising prices”.

“The BSP is increasingly using forward guidance to assure the market that current support will remain in place ‘as long as necessary,'” HSBC said in a Feb. 11 report.

“As a result, an accelerated pace of monetary tightening by the Fed is unlikely to have an immediate impact on BSP actions,” he said, referring to the upcoming multiple interest rate hikes by the Fed. US Federal Reserve this year, which should begin as early as next month.

Capital Economics Asia economist Alex Holmes said on Thursday that the BSP “will signal that it is in no rush to start tightening.”

“There is still a long way to go for the recovery. We estimate that production is still 14% below its pre-crisis trend. The central bank will likely want to maintain its supportive policy,” Holmes said in a Jan. 11 report.

With price hikes in January – caused by food shortages in the wake of Super Typhoon Odette (Rai) – expected to be only “temporary”, Holmes said inflation would “remain comfortably within target. This year”.

While the majority of economists watching the Philippines had forecast the BSP to raise policy interest rates by up to 50 basis points (bps) this year, Holmes said the London-based think tank expects a stable rate for the rest of 2022.


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