THE BANGKO SENTRAL ng Pilipinas (BSP) can wait for more economic data before easing monetary policy again, a member of the policy-setting Monetary Board said.
“In my view, there’s no rush” to cut interest rates and reduce the reserve requirement ratio for banks, V. Bruce J. Tolentino, one of three economists on the seven-member board, said in an interview on Wednesday.
“The data will tell the story moving forward.”
The BSP paused after cutting interest by 25 basis points in May, taking a gradual approach to lowering borrowing costs at the same time that it brings down banks’ reserve ratio.
BSP Governor Benjamin E. Diokno said this week that the central bank prefers to be patient and prudent on its policy steps, though he’s previously signaled a willingness to cut rates in the second half of the year given the Federal Reserve’s dovish stance.
Mr. Tolentino said there’s a limit to what rate cuts can do for an economy. Banks wouldn’t necessarily lend more to industries with low productivity, like agriculture, even if rates come down.
Government spending on infrastructure is key to spurring those industries, he said.
Additional funds released by lowering banks’ reserve ratio must be used for productive purposes, Mr. Tolentino said, echoing Mr. Diokno.
The central bank reduced the ratio of deposits lenders must hold in reserve by 2 percentage points to 16% so far this year.
“We have to make sure that money isn’t just sitting in accounts,” Mr. Tolentino said.
The BSP will make its fifth rate decision for the year on Aug. 8, hours after the Philippine Statistics Authority reports second-quarter gross domestic product (Q2 GDP) data in the morning.
For ING Bank N.V. Manila senior economist Nicholas Antonio T. Mapa, all bets are off on the next monetary policy review.
“Governor Diokno is on record as saying that ‘we have already decided’ (to cut rates) and that they are simply looking to the proper timing for the rate cuts. The big question now is, when will the BSP follow through on their May rate reduction and secondly by how much,” Mr. Mapa said in a note on Wednesday.
But “[w]ith the Fed all but signaling a rate cut at the end of the month, emerging market central banks have moved to reduce policy rates mainly to boost sagging growth momentum in the face of the protracted trade spat between the US and China,” he added.
“We expect Diokno’s decision point to rest on inflation and more heavily on 2Q GDP in the next few weeks.”
He cited Mr. Tolentino and Felipe M. Medalla as two of the more hawkish Monetary Board (MB) members for being cautious on rate cuts, saying: “… [I]t looks like Dr. Medalla will err on the side of patience and support another ‘prudent pause’ for at least the August meeting.”
Mr. Mapa said that markets will be watching out for hints from the remaining four MB members, namely: Finance Secretary Carlos G. Dominguez III; Juan De Zuniga, Jr.; Peter B. Favila and Antonio S. Abacan, Jr.
“The BSP will likely not focus on contemporaneous and singular data points (2Q GDP and July inflation) but rather we expect the technical secretariat to deliver recommendations based on forward-looking indicators,” Mr. Mapa said. — Bloomberg and Karl Angelo N. Vidal