BSP seen cutting rates, RRR anew as economy shrinks again in 4th quarter

Warren de Guzman, ABS-CBN News

Posted at Jan 14 2021 06:41 PM

BSP seen cutting rates, RRR anew as economy shrinks again in 4th quarter 1
Bangko Sentral ng Pilipinas. ABS-CBN News file photo

MANILA - The Bangko Sentral ng Pilipinas may cut its policy rate again or further reduce banks' required reserve ratio as the Philippine economy again shrinks in the fourth quarter, an economist said on Thursday. 

“As soon as Q4 figures will come out, which will still be negative, there will be reason to ease further. We are looking at 25bps cut in policy rates, and or RRR," said University of Asia and the Pacific economist Victor Abola. 

The cut will happen "after inflation goes below 2.5 percent or lower in February, toward end of Q1,” Abola added. 

The BSP has been trying to stoke economic activity by making borrowing cheap. But banks have been very risk-averse due to the recession caused by the COVID-19 pandemic. 

Abola however said he expects banks will likely start lending more this year. 

UA&P and First Metro Investments, the investment arm of the Metrobank group, have a very conservative outlook for economic growth for 2020 and 2021. 

They expect the 2020 contraction to be within 9 and 10 percent, with growth rebounding to between 5.5 and 6.5 percent in 2021. 

This is below the government forecast range of 6.5 and 7.5 percent growth for this year. 

It is also much lower than 7.6 percent growth forecast by Fitch Solutions for this year.