THE Bangko Sentral ng Pilipinas (BSP) is likely to cut policy rates in the second half before moving to reduce the reserve requirement ratio (RRR), the central bank’s Governor Benjamin E. Diokno said.
Asked if a 200 basis point (bp) cut is possible before the end of the year, Mr. Diokno told reporters, “Of course.”
“Palagay ko mauuna yung interest rate cut bago mag reserve requirement (I think the interest rate cut will come before a cut in the reserve requirement),” he added.
On May 9, the BSP Monetary Board reduced overnight borrowing, lending and deposit rates by 25 basis points to 4.5%, 5%, and 4% respectively, after a major tightening last year due to a spike in inflation. The RRR meanwhile, is set to fall to 16% this year from 18%.
The BSP has also cut reserve requirement ratio (RRR) by 100 bps on May 31, followed by another 50 bps in June to 16.5% and 6.5%, respectively.
Another 50-bp reduction will be implemented on July 26 to finally bring the RRR of big banks to 16% and thrift banks to 6%, which completes the phased cuts the BSP announced in May.
Mr. Diokno said the Philippines foreign direct investment (FDI) is growing, but the central bank is still waiting for “important metrics” such as second quarter gross domestic product (GDP) growth and inflation rates in July and August before coming up with a decision in monetary policy.
“Yung (the) FDI, look at the data. Globally, it is declining. Yung sa atin (Our FDI), is increasing. That’s showing confidence. With the recent developments, baka tumaas pa iyan (FDI could go higher),” Mr. Diokno said. He was referring to the sovereign credit rating upgrade, declining inflation, and record satisfaction ratings of President Rodrigo R. Duterte.
According to BSP data, FDI net inflows totaled $961 million in April, up from $586 million in March. However, the April total is down 11.8% year-on-year.
In his speech during the 2019 Awards Ceremony and Appreciation Lunch for BSP Stakeholders, Mr. Diokno said FDI in the first quarter totaled $1.9 billion, while foreign portfolio investment registered a net inflow of $2.5 billion, from a net outflow of $130 million a year earlier.
He also said that external debt remains manageable at $80.4 billion at the end of March, against $79 billion in the preceding quarter.
“From this position of strength, the BSP remains committed to continually upholding the highest standard of excellence in crafting policies to maintain price stability, promote a strong financial system and foster a safe and efficient payments and settlements system,” Mr. Diokno said.
“The ability of the BSP to deliver on its mandates depends significantly not only on its commitment but also on its credibility supported by its dynamic engagement with its stakeholders… But without credibility, central banks resort to more traditional, aggressive and often costly actions to achieve the same result. Thus, by establishing and maintaining consistent engagement with our partners, the BSP is able to capture the sentiment of its stakeholders, which helps us formulate and calibrate effective monetary policies,” he added. — Reicelene Joy N. Ignacio