BANGKO SENTRAL ng Pilipinas Governor Benjamin E. Diokno said on Monday that further monetary easing through rate cuts and reduction in reserve requirement ratio (RRR) remain on the table to ensure the country’s economic stability amid the coronavirus disease 2019 (COVID-19) crisis.

“We’ll do anything to get us through this crisis, so that’s still in the agenda. But right now, as you know monetary policy works with a lag, we will observe how the banking industry will behave,” Mr. Diokno said in an interview with ABS-CBN News Channel (ANC).

The central bank has already slashed policy rates by 125 basis points (bps) this year to cushion the impact of the pandemic on the economy. The latest of which is the 50 bps off-cycle rate cut which brought down reverse repurchase rate to a record low 2.75%.

Meanwhile, overnight lending and deposit have been lowered to 3.25% and 2.25%, respectively.

In total, the BSP has slashed rates by a total of 200 bps since 2019, fully reversing the 175 bps rate hikes in 2018 when inflation went to a multi-year high.

Whether or not another rate cut will come sooner will depend on inflation trend, according to Security Bank Corp. Chief Economist Robert Dan J. Roces.

“They’ll likely assess trajectory of inflation to help decide when appropriate to cut policy rates further while keeping real rates in positive territory,” Mr. Roces said in an e-mail.

For UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion: “There might be another 25 bps depending on more data points, i.e., April inflation. Or it could also be another 50 bps because 2.25% essentially is still above the BSP new inflation average for 2020 at 2.0%.”

Since the Monetary Board (MB) canceled its May 21 meeting after the off-cycle rate cut, the next scheduled policy-setting meeting will be on June 25.

In terms of RRR cuts, it can be recalled that Mr. Diokno promised to bring it down to a single digit by the end of his term in mid-2023.

Given that the central bank has again reduced RRR for universal and commercial banks by 200 bps to 12% in early April, Mr. Diokno said that they are now “ahead” of their goal as he still has three more years to further bring down the RRR.

For now, RRR of thrift and rural banks have been maintained at four and three percent, respectively. However, the BSP has reduced minimum liquidity ratio for standalone thrift and rural banks by 400 bps to 16% until yearend in a move to boost liquidity amid the pandemic.

“Further cuts in RRR by least another 200 bps as hinted by the MB would help further reducing borrowing costs and infuse about P200 billion into the banking system,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Mr. Diokno has been authorized by the central bank to reduce RRR by a total of 400 bps in total for the whole of 2020.

Analysts are of the view that BSP still has space left to further cut RRR.

“We still have a high level of RRR compared to other neighboring countries and it is part of the plan since the time of the late Governor Nestor A. Espenilla,” Mr. Asuncion said.

“RRR is also still potent with central bank affording to cut by another 200 bps authorized, or even further if the situation needs it, though they’ll likely stop at 10%,” Mr. Roces said. — Luz Wendy T. Noble

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