Fitch Ratings continues to see an accommodative monetary policy stance in the Philippines due to a benign inflation environment, which bodes well for the projected economic recovery next year.
In its 2021 Outlook for Asia Pacific report dated December 8, the debt rater said absence of inflationary pressure gives the Philippines, among several other countries in the region, a leeway to keep its monetary policy view.
“We expect modest further interest rate cuts in some economies, including India, Malaysia, and the Philippines,” it said.
The Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) has slashed the central bank’s key rates by a total of 200 basis points to help buoy the domestic economy from the impact of the coronavirus disease 2019 (Covid-19) pandemic.
Currently, the BSP’s overnight reverse repurchase (RRP) rate is at 2 percent, the overnight lending rate at 2.5 percent, and the overnight deposit rate at 1.5 percent.
The rate reductions brought the real interest rate in negative territory since average inflation in the first 11 months this year stood at 2.6 percent.
Economists forecast further cuts in the central bank’s key rates given the need to lift the domestic economy, which has been in recession since the second quarter of this year.
The report said “accommodative stance among emerging markets will help foster recoveries and keep borrowing costs low” but added these “carry risks to policy credibility.”
Programs to buy assets “will support orderly bond market conditions” even as capital flows to the region are improving.
In general, the report expects an economic rebound for Asia Pacific next year “as global growth and exports recover.”
“The rebounds will be supported by the region’s relative success – albeit uneven across jurisdictions – in containing Covid-19, China’s broadening economic recovery, supporting fiscal and monetary policies, and eventual rollout of vaccines,” it said.
The report, however, said risks remain high because of the evolution of the pandemic. CURRENTPH