Benjamin E. Diokno
‘We’re considering it. I’m sure that will be on the agenda in the next policy meeting,’ Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said of an expected cut in benchmark interest rates after increases totaling 175 basis points in five consecutive decisions last year.

A CUT in benchmark interest rates will be considered on May 9, when the Bangko Sentral ng Pilipinas (BSP) Monetary Board (MB) holds its third policy review for this year, the central bank chief said in an interview with Bloomberg Television, even as he cited risks that could force monetary authorities to again hold off such move.

Noting that inflation is “right now… under control”, BSP Governor Benjamin E. Diokno said at the sidelines of the World Bank and International Monetary Fund spring meetings in Washington D.C. that a cut in policy interest rates is “on the agenda” in next month’s MB meeting.

“We’re considering it. I’m sure that will be on the agenda in the next policy meeting,” Mr. Diokno said.

The MB maintained benchmark rates and banks’ reserve requirement ratio (RRR) in its first and second policy reviews on Feb. 7 and March 21 but cut the central bank’s headline inflation forecast for 2019 by a percentage point in each of those meetings to a flat three percent as of late. Headline inflation slowed for a fifth consecutive month to a 15-month-low 3.3% in March from a nine-year-high 6.7% in September and October last year. Inflation averaged 5.2% in 2018, the fastest in nearly a decade.

Policy rates are now at 4.35% for overnight deposit, a decade-high 4.75% for overnight reverse repurchase and 5.25% for overnight lending after increases totaling 175 basis points (BP) in five consecutive meetings last year to counter inflation’s surge, while the RRR for big banks stands at 18% after cuts totaling 200bps also in 2018.

“We increased interest rates by 175 bps last year. Now that inflation has normalized, I think there’s room for some easing or relaxation,” Mr. Diokno said.

At the same time, he added: “But we have to look at other threats like, for example, oil prices are rising again.”

“We’re also looking at… El Niño [because] maybe food prices will remain elevated,” he said. “We’re going to look at all of these; what’s happening also in the US-China trade war.”

Mr. Diokno bared a dovish streak soon after assuming his new job last month after a more-than-two-year stint at the helm of the Budget department under President Rodrigo R. Duterte, describing banks’ RRR as still “very high” and citing “room for… one percentage point [cut] every quarter for the next four quarters.”

While he said in Washington that “[e]very policy decision will be evidence-based and also data’driven”, Mr. Diokno said: “It’s not a matter of whether we will cut, but it’s a case of when or the timing.”

For ING Bank N.V. Senior Economist Nicholas Antonio T. Mapa, “[i]t looks like the BSP will have to determine which move will come first, with market fully anticipating RRR cuts to come first at a non-policy meeting, to eventually be followed by a cut in the policy rate as inflation cools.” — Karl Angelo N. Vidal