BSP Seen To Keep Interest Rates Low in 2021 Amid COVID-19 Pandemic
The Bangko Sentral ng Pilipinas (BSP) is seen to maintain low interest rates until the end of 2021 as loan disbursements of banks continue to shrink due to the persisting COVID-19 pandemic.
According to the Fitch Solutions Country Risk and Industry Research report, BSP is likely to keep the benchmark interest rate at a record low of 2% for the remainder of 2021, despite the rising risks to economic recovery.
The research house stated, “We maintain our forecast for the key policy rate to stand at 2% by the end of 2021 and see downside risks to our outlook for three 25-basis point rate hikes in 2022 given the Philippines’ continued struggles with managing the COVID-19 pandemic.”
The surge in new COVID-19 infections and the lockdown measures implemented from March to May in the National Capital Region and adjacent provinces (NCR Plus) puts substantial weight on domestic demand and threatens the longer-term outlook for the economy.
Such events have caused a tremendous amount of loss in income and numerous unemployment for many businesses in the Philippines.
Fitch Solutions added, “We highlight weak credit growth as a signal that monetary policy may need to remain accommodative over an extended time period.”
According to the latest BSP data, loan disbursements by universal and commercial banks continued to decrease to 4.5% in March, from 2.7% in February.
BSP shared that credit activity from banks also remained low as lending standards grew tighter due to the resurgence of COVID-19 cases in the Philippines.
BSP kept interest rates steady since the 25-basis point rate cut on November 19, 2020, to support a faster recovery from the pandemic.
Fitch Solutions concluded, “We will be watching the Philippines’ COVID-19 containment efforts and vaccination program. If the country continues to struggle with the outbreak, we could revise our economic growth outlook lower and, with it, our outlook for policy hikes in 2022. In particular, if the weak credit data continues through 2021, monetary policy conditions may have to be eased further.”