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Diokno eyes around 50bps rate cuts in 2020

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PHILSTAR/GEREMY PINTOLO

THE Bangko Sentral ng Pilipinas (BSP) may consider cutting rates by about 50 basis points (bps) in 2020, according to Governor Benjamin E. Diokno.

“Maybe we’ll be considering 50 basis points (bps) next year and we have more time on the reserve requirement because my promise is that we will cut the reserve requirement to single digit by the end of my term which is 2023…,” he said in an interview with Bloomberg TV on Friday.

If realized, a total of 125 bps will have been unwound by 2020 from the 175-bps rate hike barrage in 2018 that the BSP fired in the midst of soaring inflation.

Fitch Solutions on Friday also said that they are predicting another rate cut from the BSP in 2020.

“…we maintain our view that the BSP will opt to cut its key policy rate once again in 2020. Our view is supported by the fact that external conditions are likely to remain challenging for the Philippine economy over the coming quarters,” Fitch Solutions said in a report titled “Economic Analysis — Philippine Monetary Policy To Maintain Dovish Tilt in 2020”.

On Thursday, the Monetary Board decided to hold key interest rates for its eighth and final meeting in 2019.

Before this, the policy-setting body has trimmed rates by a total of 75 bps this year through 25-bps cuts that were done in May, August, and September.

This has brought overnight reverse repurchase to four percent, while overnight deposit and lending facilities are at 3.5% and 4.5%, respectively.

Mr. Diokno that their decision was supported by the continued benign inflation environment.

“The bank’s statement indicated a strong sense that monetary conditions remained sufficient given its current outlook for the economy and inflation, with little need for a further easing of conditions,” Fitch Solutions said in its report.

Headline inflation in November was at 1.3%, which, although a pickup from the 0.8% logged in October, is still well within the BSP’s range of 2-4%.

Mitsubishi UFJ Financial Group ASEAN head of global markets Research Leong Sook Mei also thinks there is room for further easing in 2020 based on BSP’s remarks on Thursday.

“A sign that a rate cut is still in the offing despite not moving yesterday, and the last meeting was BSP’s remark that the likely 2020 rate hold by the [US] Fed[eral Reserve] will help to ‘add boost to the further downward trend in the interest rate path’ and accords ‘greater flexibility’ for the BSP to conduct monetary policy,” she said in a note sent to reporters on Friday.

Union Bank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion has likewise told BusinessWorld on Thursday that he sees a 50 bps rate cut could be on the table as early as the first half of 2020.

“Major factors would be inflation expectations, global oil price movements, and the impact, so far, of 2019’s easing on market liquidity and credit growth,” he said in a text message.

BSP data showed that loan growth of universal banks was at 10.5% in October, slower than the 10.5% expansion in September.

Mr. Diokno has previously said that monetary easing works with a lag and that it may take up to nine months before it could fully set into the financial system. — Luz Wendy T. Noble





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