Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Wednesday the further easing of policy rates and reserve requirement is possible before the end of the year.
Diokno said, however, the policy-making Monetary Board would consider vital economic data before such moves could happen. He said the inflation rate and the gross domestic product growth in the second quarter would be among these indicators. “Those are the important metrics,” he said.
Diokno made the comments at the sidelines of the 2019 Awards Ceremony and Appreciation lunch for BSP stakeholders.
“I think interest rate cut could happen first before the RRR cut,” Diokno said. He said a 200-basis-point cut in RRR is possible.
Economists from First Metro Investment Corp. said Monday the BSP could further reduce the reserve requirement ratios of banks by 2 percentage points and slash policy rates by 50 basis points this year to boost the economy.
First Metro president Rabboni Francis Arjonillo said in a briefing the market would remain conducive for bond investments in the second half “as we anticipate the BSP to further cut the reserve requirement by another 2 percent and potentially reduce policy rates by 50 basis points from its current levels as inflation continues to drop.”
“These cuts should produce positive effects for the economy and the financial markets because there would be more funds available for consumers and businesses,” Arjonillo said.
Arjonillo said the market reacted positively after the announcement of the 2-percent RRR cut in May this year, from 18 to 16 percent. He said the 10-year bonds dropped to 5 percent from a high of 5.8 percent.
“The policy rate and RRR cuts are aimed at stimulating growth to propel the economy forward, to cheapen the cost of money, encourage borrowings, spur consumer spending, and secure the ability of the people to pay the loans and debts,” he said.
Reserve requirement, also called cash reserve ratio, is a central bank regulation that sets the minimum fraction of customer deposits and notes that each bank should hold as reserves.
The Monetary Board cut the policy rates by 25 basis points to 4.5 percent on May 9, the first time in more than six years, as inflation continued its downward trajectory.
The following week, the board cut the reserve requirement of universal and commercial banks by 2 percent to 16 percent. It was complemented by a 200- basis point reduction in RRR on May 23 for thrift bank and non-financial institutions with quasi-banking functions and 100 bps cut for demand deposits of rural and cooperative banks effective May 31.
Latest data from the Philippine Statistics Authority showed that the inflation rate averaged at 3.4 percent in the first six months, within the government’s target range of 2 percent to 4 percent.
