BSP chief preps mart for another rate cut

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Bangko Sentral ng Pilipinas chief wants banks' reserve requirement ratio cut to single digit level when he ends his term in 2023.

THE MARKET can expect more monetary policy easing in the remaining months of the year, in terms of tweaks to benchmark interest rates and banks’ required reserves, the central bank chief told economic journalists in a forum on Tuesday.

“Another 25 basis points (bps) before the end of the year,” Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said when asked on the matter. “We’ll review. We’ll be data dependent… We’ll look at the behavior of other central banks.”

The central bank has cut benchmark interest rates by a total of 50 bps, so far, this year — by 25 bp each on May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for overnight deposit, partially dialing back the 175 bp cumulative hikes triggered last year by successive multi-year-high inflation that peaked at a nine-year-high 6.7% in September and October.

On the subject of trimming the reserve requirement ratio (RRR), Mr. Diokno replied: “Anything can happen… It’s a live issue.”

Ahead of the August monetary policy review, Bloomberg reported that the central bank chief was looking at a total of 50-bp cut in the remaining months of the year after the May 9 25 bp reduction.

In an interview after the policy meeting this month, which resulted in this year’s second 25-bp rate cut, with ABS-CBN News Channel, Mr. Diokno signaled that RRR cut could happen anytime towards the next policy review on Sept. 26 — the sixth for the year — during which another 25 bp cut would be on the table.

Two weeks ago, he had said that the Monetary Board’s consensus is to “pre-announce” plans for the RRR on a quarterly basis. The RRR now stands at 16% for big banks and six percent for thrift, savings and cooperative lenders after the phased 200-bp cut implemented after an off-cycle meeting last May.

The reductions in reserve requirement of both big and smaller banks are estimated to have released at least P200 billion into the financial system by the end of July that could support productive activity.

The central bank chief is committed to bring down the reserve requirement down to single digit when he ends his term in 2023. — Mark T. Amoguis