By Melissa Luz T. Lopez
Senior Reporter
THE CENTRAL BANK kept benchmark interest rates steady on Thursday, citing the need to stay cautious given risks to economic growth even as inflation has been easing steadily.
The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) voted to keep benchmark interest rates unchanged during this week’s meeting, which marks the first to be led by new Governor Benjamin E. Diokno.
This is also the third straight meeting that the rates were kept within 4.25-5.25%, with the key rate of 4.75% still at a decade-high.
“The Monetary Board’s decision is based on its assessment that prevailing monetary policy settings remain appropriate,” Mr. Diokno said during a media briefing after the meeting.
“Inflation pressures have eased further since the previous monetary policy meeting, reflecting mainly the decline in food prices amid improved supply conditions.”
This week’s decision was widely expected by market watchers, with 10 of 13 economists saying in a BusinessWorld poll that they were confident that the BSP will not touch interest rates just yet.
The central bank said it was not yet time to start reversing the 175 basis point (bp) total increase it fired off in 2018, which were meant to curb surging inflation expectations.
From a nine-year peak of 6.7% in September and October, inflation has steadily dropped to 3.8% in February, the lowest in a year and returning to the BSP’s 2-4% target range.
Yesterday’s statement also pointed out that domestic activity remains firm, but emphasized risks to economic growth this year “if the current budget impasse in Congress is not resolved soon.”
Mr. Diokno has been dubbed a “pro-growth” central bank chief, given his previous stint as Budget secretary.
However, BSP Deputy Governor Diwa C. Guinigundo said that monetary authorities remain “singularly focused” on price stability, but added that it is done to support the “sustainable growth of the economy.”
Last week, economic managers slashed the government’s economic growth target to 6-7% for 2019 from 7-8% previously, noting that it will be very difficult to catch up with planned infrastructure spending as they have already missed the best time to roll these out this quarter.
Mr. Guinigundo added that the decision of the United States Federal Reserve to end its tightening cycle for the year was factored in yesterday, adding that the Fed pause “gives more flexibility for many emerging markets to keep monetary policy steady.”
The reserve requirement ratio (RRR) was untouched in this meeting, with policy makers watchful about its effects.
“The issue of reducing the reserve requirement is a live issue — it’s always on the table but the issue is timing. We want to make sure that when reserve requirement is adjusted, it is consistent with monetary policy,” Mr. Guinigundo added. “The board agrees it is important that we get the timing right.”
Mr. Diokno said last week that he sees room to ease policy rates as well as to slash the “very high” reserve standard imposed on big banks by one percentage point (ppt) per quarter for the next four quarters. Mr. Guinigundo clarified that this was merely a way to signal the BSP’s “broad direction” towards cutting the 18% RRR, adding that such a move requires “careful assessment.” A one ppt reduction in reserves will unleash P85-90 billion into the economy.
Security Bank economist Robert Dan J. Roces said in a separate briefing yesterday that subsequent RRR cuts would be “ideal to manage money supply growth,” given the sustained slowdown in the past few months.
“We have a little bit of a liquidity problem… If money supply eases, there’s more money to spend, consumption spending will go up,” Mr. Roces said, adding that he expects policy rate cuts in the second semester “if at all.”
“Even though inflation has been averted, we’re still not yet in the clear. I think the BSP will be very prudent in terms of cutting interest rates. We’re probably seeing a cut when inflation is… closer to two percent, and if it’s been there for the longest time, say one quarter.”
INFLATION FORECAST SLASHED
The BSP also sees inflation softening further this year.
Mr. Guinigundo said the full-year forecast has been trimmed to three percent from 3.1% previously, owing to the lower-than-expected February print and with the downward path seen to continue for the rest of the year.
Other factors include the lower Dubai crude oil prices, negative base effects and improved food supply with the passage of the rice tariffication law. However, the BSP official said the current El Niño episode — which is projected to last until October — stands as a “wild card” to prices.
For 2020, the inflation estimate was kept at three percent.
Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, said the BSP is likely to reverse its track soon: “BSP’s inflation forecasts validate that the BSP is likely done with its tightening cycle, with a policy reversal in sight given slowing growth momentum, a dovish Fed and inflation back within target.”
The BSP’s next rate-setting review is scheduled on May 9.

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