Mild policy normalization expected in Philippines, says ANZ

MANILA, Philippines — ANZ Research expects milder monetary policy normalization in the Philippines and its neighboring countries as strains on household incomes and finances due to the pandemic have become more entrenched.

“On monetary policy, we are of the view that policy normalization will be slow and independent of the US Federal Reserve,”  ANZ chief economist for Southeast Asia Sanjay Mathur said.

He said the duration of the   pandemic is now worryingly similar to the 1997 Asian financial crisis and has made a lasting dent on the financial position and incomes of households in the Philippines, Indonesia and Thailand.

“For the Philippines, the proportion of households with savings has dropped remarkably. The situation is likely to have been aggravated by the slowdown in remittances from overseas workers,” he said.

However, Mathur said the headwind started to abate recently.

ANZ has observed a persistent slack in the labor markets in the Philippines, Indonesia and Thailand.

“The Philippines stands out with more than a quarter of its labor force unemployed and underemployed for six straight quarters,” Mathur said.

Before restoring their consumption to pre-pandemic levels, ANZ said households would initially rebuild their savings and this would take a few years.

According to ANZ, the household sector is in a difficult situation and it can no longer be sanguine about a robust rebound in private consumptions upon reopening.

“We now risk a durable suppression in household demand in Indonesia, the Philippines and Thailand. The scope and scale of pent-up demand waiting to be unleashed upon re-opening could disappoint,” Mathur said.

To manage such backdrop, the economist said a more durable shift in policy framework including larger budget deficits and tepid monetary policy normalization is needed.

ANZ cited the case of the Philippines wherein fiscal authorities do not intend to reduce the budget deficit to three percent of gross domestic product (GDP) anytime soon.

Instead, the Philippines  is looking at trimming the shortfall to 4.9 percent of GDP by 2024 from the projected 9.3 percent of GDP this year.

During a virtual forum organized by The Asset, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the country’s monetary policy stance would remain accommodative to support the fragile economic recovery.

“The BSP will remain vigilant over the current inflation dynamics to ensure that the monetary policy stance continues to support economic recovery to the extent that the inflation outlook will allow,” Diokno said.