Amid a slow economic recovery, the Bangko Sentral ng Pilipinas (BSP) is expected to keep its key interest rates stable even if the inflation rate remains above target levels, said an economist at US banking giant JP Morgan.
“In our view, keeping borrowing costs low for households and businesses will be critical in shaping the recovery in demand in a context of weak loan growth and, therefore, the BSP will likely maintain its current accommodative stance as long as that sentiment will remain weak, ”JP Morgan economist Nur Raisah Rasid said in a research note.
Rasid released the comment following the release of trade data from the Philippines in April, which showed the trade deficit narrowed slightly as domestic activity slowed due to renewed coronavirus lockdowns.
The trade deficit rose to $ 2.73 billion in April, in line with JP Morgan’s expectations, but higher than the consensus deficit forecast of $ 2.4 billion. In seasonally adjusted terms, the trade deficit narrowed to $ 2.44 billion in April.
Meanwhile, JP Morgan noted a widespread trade slowdown due to strengthened quarantine measures amid a resurgence of COVID-19 infections that had far exceeded the peak of the first wave of infections last year.
Thus, the study noted that trade activity slowed exports and imports by 7.9% month-on-month and 8.9% seasonally adjusted, leaving the overall trade deficit broadly stable compared to to March.
“While our macro story for the Philippines envisions a pick-up in investment spending (capital spending) in the fourth quarter, the slow deployment of the vaccine implies a further delay in normalization of activity in the first quarter of 2022,” did he declare. Against this backdrop, the economist noted that imports of capital goods contracted by 3.3% month-on-month adjusted for seasonal variations in April after a consecutive monthly expansion. Meanwhile, exports fell 7.9% month-on-month, seasonally adjusted, in both tech and non-tech sectors.
“All in all, the trade balance remains a key macroeconomic measure to watch to assess the underlying dynamics of overall economic activity and the implications for growth and external balances. We expect the BSP to remain on hold despite the CPI (Consumer Price Index) breaches, ”the research said.
BSP’s overnight borrowing rate is currently 2%.
The country’s annual inflation in May stood at 4.5%, similar to rates in March and April, and was in line with market expectations. This is even higher than the BSP target range of 2 to 4 percent.
Year over year, the country’s export earnings jumped 72.1% while imports jumped 140.9%, starting from a very weak base last year. INQ
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