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  • Writer's pictureZiggurat Realestatecorp

Surprise rate cut unlikely

The Bangko Sentral ng Pilipinas (BSP) is expected to remain accommodative the entire year as the Omicron variant will further stall economic recovery in the Philippines.

In its weekly brief, London-based Capital Economics maintained that the central bank would not deliver any surprise rate adjustment, with monetary policy remaining loose for 2022.

It noted that inflation continues to fall and the economy is still well below its pre-crisis level, and is facing yet another hiccup amid another COVID-19 surge due to the Omicron variant.

“Falling inflation and an increasingly uncertain economic outlook add weight to our non-consensus view that the central bank in the Philippines will not start tightening in 2022,” economist Alex Holmes said.

Inflation slid to 3.6 percent in December, its lowest for 2021. Capital Economics is looking at a further drop to 2.4 percent this January.

Apart from falling inflation, Holmes said the economic outlook for the Philippines has worsened due to the latest surge in COVID-19 cases as the Omicron variant spreads.

Yesterday, the country hit another record high in daily infections, logging 28,707 new cases.

Metro Manila and several other provinces were reverted to Alert Level 3 amid the surge in cases.

Such a move effectively limited capacity in establishments and other service industries.

“South Africa’s experience suggests that the Omicron wave could be shorter and less economically damaging than previous waves,” Holmes said.

“Nonetheless, these measures will weigh on the recovery of the services sector and support our view that the central bank will look to keep rates low,” he said.

The market consensus is for the BSP to hike rates by at least 30 basis points by end-2022.

While the Philippines is facing another snag in recovery, Holmes noted that the country and the rest of Asia are learning to live with the virus.

The think tank expects the disruption to economic activity to be much less severe than it was during previous waves of the virus in 2020 and 2021.

“Provided fiscal support is forthcoming, activity should bounce back quickly once restrictions are eased and people’s behavior returns to normal,” Holmes said.

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