The Bangko Sentral ng Pilipinas is inclined to reduce the benchmark borrowing rate by another 25 basis points to 4 percent before the end of the year as the inflation rate is expected to ease further, Governor Benjamin Diokno said Tuesday.
Diokno, however, said any move by the Monetary Board should always be based on pertinent economic data and the results of close monitoring of global economic developments.
“We will [continue to] review the pertinent economic data and other developments,” Diokno said during the midyear economic forum organized by the Economic Journalists Association of the Philippines at the Ayuntamiento de Manila.
Diokno said giving a hint of another 25-bps cut in policy rate could allow the banking sector more time to prepare on what to do with extra liquidity.
He did not say if the policy rate cut would be made ahead of the planned reserve requirement ratio reduction.
“Anything can happen between now and late September [which is the next policy meeting]. Reserve requirement cut remains a live issue,” Diokno said.
The Monetary Board, the policy-making body of the BSP, on Aug. 6 slashed the overnight borrowing rate by 25 basis points to 4.25 percent, taking into account the downward trajectory of the inflation rate and the sluggish economic growth in the first half.
Diokno said the latest baseline forecasts of the BSP indicated that inflation would likely settle within the target range of 2 percent to 4 percent for 2019 up to 2021.
Inflation averaged 3.3 percent in the first seven months, slower than its peak of 6.7 percent in October 2018.
ING Bank Manila senior economist Nicholas Mapa said he was expecting the BSP to cut the policy rates again by 25 bps in its September meeting given the previous comments from Diokno pointing to a total of 50 bps worth of rate cuts before the end of the year.
“Furthermore, we expect the BSP to reduce reserve requirements further in the fourth quarter after it completes its 2019 rate cut cycle to help infuse fresh liquidity into the market. RRR reductions
will be put on hold as BSP gauges whether additional funds are diverted to productive activities and not simply parked at BSP’s overnight facilities,” Mapa said in a report.
Economic growth in the second quarter slowed to a four-year low of 5.5 percent from 5.6 percent in the first quarter and 6.2 percent a year ago, weighed down by the El Nino dry spell, rising protectionism in advanced economies, delay in the approval of the national budget for 2019 and the ban on construction activities in the run-up to the midterm elections in May 2019.
The growth in April to June was the slowest since the 5.1-percent GDP expansion in the first quarter of 2015. It was also the second successive quarter that economic growth fell below 6 percent.
This brought the first-half GDP growth average to 5.6 percent, below the low end of the government’s 2019 target range of 6 percent to 7 percent.