Pause on rate cuts seen

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    Stockbroker SB Equities Inc. expects the Bangko Sentral ng Pilipinas (BSP) to pause rate cuts amid an already accomodative interest rate environment.

    SB Equities said in a report it expects the central bank to be less accommodating once inflation picks up to 3 percent and growth recovery speeds up by the second half of next year. That is, in anticipation of the availability of a vaccine against the coronavirus disease 2019 (COVID-19) .

    “We think the monetary policy action will need to be complemented by a viable fiscal response, which together will be key to economic recovery,” SB Equities said.

    The central bank on Thursday opted to cut interest rates anew, by 25 basis points, as the economy continues to contract.

    The interest rate on the overnight deposit now stands at 2 percent. The interest rates on the overnight deposit and lending facilities were likewise reduced to 1.5 percent and 2.5 percent, respectively.

    In a statement, BSP Governor Benjamin Diokno said the Monetary Board observed global economic prospects have moderated in recent weeks amid the resurgence of COVID-19 cases.

    Diokno said the Monetary Board noted that “while domestic output contracted at a slower pace in the third quarter of 2020, muted business and household sentiment and the impact of recent natural calamities could pose strong headwinds to the recovery of the economy in the coming months.”

    “Given these considerations, the Monetary Board assessed there remains a critical need for continuing policy support measures to bolster economic activity and boost market confidence,” Diokno said.

    “With a benign inflation environment and stable inflation expectations, the Monetary Board sees enough policy space for a reduction in the policy rate at this juncture to uplift market sentiment and nurture the country’s economic recovery amid increased downside risks to growth,” he added.