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July 21, 2024

Dutch financial giant says days of record low rates numbered

Dutch financial giant ING Bank believes the days of record low interest rates in the Philippines are numbered as the Bangko Sentral ng Pilipinas (BSP) will likely pull the trigger and hike rates by the end of the second quarter.

After keeping interest rates at record lows on Thursday, ING Bank senior economist Nicholas Antonio Mapa said no less than BSP Governor Benjamin Diokno signaled the start of normalization.

“This is the first time Diokno has made mention of his exit strategy this year and suggests that a potential rate reversal is being considered. Diokno also mentioned that the economic recovery gaining traction although monetary authorities admitted that downside risks to the growth outlook remain,” Mapa said

The Philippines plunged into recession in 2020 as the gross domestic product (GDP) shrank by 9.6 percent when the economy stalled due to strict COVID-19 restrictions.

It bounced back from the pandemic-induced recession with a GDP expansion of 5.6 percent last year, slightly faster than the government target of five to 5.5 percent.

Mapa said that the central bank indicated that policy normalization may begin after notching four quarters of GDP growth.

“Thus, we believe that the trigger point for a potential rate reversal would have to be linked to a solid economic recovery coupled with depreciation pressure on the peso,” Mapa said.

He added the central bank’s Monetary Board is likely to start hiking rates late in the second quarter of the year due to the likely strong GDP expansion in the first quarter.