ING Bank Manila expects the resumption of reserve requirement reduction to occur soon, judging from the statements made by Bangko Sentral ng Pilipinas Governor Benjamin Diokno at the sidelines of the International Monetary Fund’s Spring meeting in Washington.
Diokno said in an interview in Washington he remained open to easing monetary policy, adding all moves would remain data dependent and “evidence based.” Asked whether it was time to cut policy rates in May, Diokno replied the real question was not “whether we cut, it is when.”
Asked on whether RRR cuts were also on the agenda in May, Diokno confirmed such moves, which have been relegated to the “non-policy” space during the late governor Nestor Espenilla’s term, were on the table “all the time.”
“This shows that cuts to RRR can be carried out at non-policy meetings, just as they were delivered in 2018 and even at a time wherein inflation was accelerating past target,” ING Bank Manila senior economist Nicholas Mapa said in a report Friday.
“The word that comes out as the most crucial from all this is ‘timing.’ Previously, Deputy Governor Guinigundo indicated that RRR cuts would happen eventually, with the BSP gauging the best “timing’ to do so,” Mapa said.
“Diokno now brings out the ‘timing issue’ to both the RRP and RRR during his interview in Washington. It looks like the BSP will have to determine which move will come first with market fully anticipating that RRR cuts to come first at a non-policy meeting, to eventually be followed by a cut to the policy rate as inflation cools,” Mapa said.
“ING maintains our expectation that reductions to the RRR will be conducted in the near term at a non-policy meeting while the BSP will seriously consider slashing policy rates (the RRP) as inflation cools and as more and more signs point to a weak first-quarter GDP print,” Mapa said.
Earlier, Diokno said the Monetary Board would continue to be data-dependent in deciding when to resume the reduction in reserve requirement ratios of banks, one of the highest in the region.
The reserve requirement (or cash reserve ratio) is a central bank regulation employed by most, but not all, of the world’s central banks, that sets the minimum amount of reserves that must be held by a commercial bank.
The Monetary Board in February 2018 made a one-percentage point cut in the reserve requirement of banks from 20 percent to 19 percent.
The board said the operational adjustment would support the Bangko Sentral’s shift toward a more market-based implementation of monetary policy as well as its broad financial market reform agenda.
The regulator followed it up with another one-percentage point cut in May 2018 from 19 percent to 18 percent. The two RRR cuts were made outside the scheduled policy meetings.
Diokno said given the deceleration in inflation, there might be a room for monetary easing.