Monetary policy changes still far off, say think tanks

MANILA, Philippines — Any monetary policy change still seems to be far off, analysts say, as economic recovery remains fragile even as the Bangko Sentral ng Pilipinas (BSP)  has hinted at moves toward normalization.

International think tanks Pantheon Macroeconomics and Capital Economics both maintained their view that the BSP may continue its accommodative policy stance for the rest of the year.

As expected, the BSP left its main policy rate unchanged at a record low of two percent during its first policy meeting for the year.

However, the central bank has signaled   it will  “continue to carefully develop its plans for the eventual normalization of its extraordinary liquidity measures when the conditions warrant.’’

While the next question is when can normalization be expected, Pantheon senior Asia economist Miguel Chanco said the answer is likely still “not this year” even with the BSP’s more hawkish tone.

“Risky as it may seem, the BSP arguably is under some pressure to give the market what it wants, lest it send the already fragile peso into another tailspin, with an aggressive US Fed hiking cycle just around the corner,” Chanco said.

Capital Economics shared the same view that the BSP would keep rates on hold for 2022 especially as gross domestic product (GDP) is seen broadly flat this quarter following the Omicron surge, and that recovery would resume only in the second quarter.

Economist Alex Holmes said output was still two percent lower than the pre-pandemic level and 14 percent below the pre-crisis trend.

“The central bank thinks the level of GDP will only reach its pre-crisis level in the third quarter of this year. Given this, we think the BSP will want to keep policy supportive,” Holmes said.

Chanco, for his part, maintained that discussions over when the Philippines could close its output gap this year seemed “very premature.”

He argued that this was largely due to the country suffering one of the biggest recessions in Emerging Asia at the height of the pandemic in 2020 and still lagged behind in terms of recovery last year.