BSP Keep Rates On Hold As Expected; Easing Cycle Seen On Hold For Now

The BSP kept rates unchanged at its policy meeting yesterday, the main rate was left at 2.0%, overnight deposit and lending facilities were also left unchanged at 1.5% and 2.5%.

• In a note JP Morgan wrote: "Policy rate cuts have likely run their course. The BSP surprised markets with a 25bp cut in November as they likely pre-empted the strong headwinds following the recent typhoons amid a weak economic recovery. This brought the cumulative policy rate easing for 2020 to 200bp. We expected the BSP to remain on hold yesterday considering the recent spike in headline inflation, which the BSP has well acknowledged as transitory in nature given typhoon-related supply-side disruptions on food prices. Looking ahead, we think the policy stance will remain accommodative in 2021, possibly in the form of more reserve ratio requirement (RRR) cuts once liquidity conditions tighten (second chart), although as the BSP governor stated in late November that "monetary policy is not the only game in town", we think there is ample room for the fiscal side to pick up."