NEWLY APPOINTED Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno is looking to cut the “very high” reserve standard for banks in four successive moves this year, even as he noted that local infrastructure projects remain well-funded even without injecting fresh liquidity.
The former Budget secretary-turned-central bank chief said on Tuesday that future cuts to the reserve requirement ratio (RRR) are meant to bring down the ultra-high regime, and not so much to provide stimulus for the state’s ambitious spending goals.
“We have enough money in the Treasury to fund those ‘Build, Build, Build’ projects, so there’s no need for monetary easing,” Mr. Diokno said in an interview with ABS-CBN News Channel.
“But if there’s a need, if we have to ease, it’s because our required reserve ratio is very high.”
The BSP slashed the RRR in two 100-basis-point moves in March and June 2018 that brought the mandatory reserves for universal and commercial banks to 18% of their total deposits.
“I think there’s room for monetary easing. It could be one percentage point every quarter for the next four quarters,” Mr. Diokno added.
“We’ll look at the data and see, because every time we reduce our reserve requirement by one percent, that translates to P90-100 billion in the economy.”
If implemented, the cuts would leave the RRR at 14% by early 2020.
The late Governor Nestor A. Espenilla, Jr. had set a goal to bring the RRR to single-digit level by 2023 to put it at par with regional peers and to reduce the cost of borrowing money.
Mr. Diokno said he will consider inflation in timing the next reserve reductions.
ING Bank N.V. Manila has said it expects the first RRR cut by May, noting that liquidity conditions have tightened in the aftermath of the government’s issuance of P235.935 billion retail Treasury bonds this month.
However, BSP Deputy Governor Diwa C. Guinigundo has said that monetary authorities can trim the RRR again only if the year-to-date inflation rate falls below four percent and if there is “real tightness” in money supply, pointing out that recent term deposit auctions have proved otherwise.
Inflation has averaged 4.1% for the first two months against the central bank’s 2-4% target range for the year.
Meanwhile, Mr. Diokno stressed that “there is room” to lower benchmark interest rates amid declining inflation, but this will still be decided by the seven-man Monetary Board.
Last week, Mr. Diokno said he wanted to “expedite” the delivery of RRR cuts, but later on noted that it will also be subject to the body’s decision.
The key policy rate is currently at a decade-high of 4.75%, reflecting the cumulative 175 basis point increase in benchmark yields which took effect last year as the BSP sought to douse inflation expectations.
Coming from a nine-year-high 6.7% inflation rate in September and October, price increases have slowed for the fourth straight month to 3.8% in February, now a one-year low. It also marked the return to the 2-4% target band of the central bank.
From 5.2% in 2018, the BSP sees inflation settling at 3.1% this year.
“The inflation rate, it has gone down and inflationary expectations have also gone down,” Mr. Diokno said, adding that latest cues from the United States Federal Reserve and the European Central Bank also point to policy easing.
“All these we will factor in when we make a decision at some point. Maybe as early as this (month) or next month.”
Mr. Diokno will chair his first rate-setting meeting on March 21. Concerns about the El Niño-induced dry spell as well as the price impact of the shift to tariffs for rice from quantitative restrictions will also be considered, he added.
Market observers have said Mr. Diokno’s dovish and “pro-growth” tone are keeping rates low and the peso weak. — Melissa Luz T. Lopez