Bangko Sentral ng Pilipinas to Resume Cuts Amid Benign Inflation

The Bangko Sentral ng Pilipinas is planning to resume an easing cycle with 50 basis points of cumulative rate cuts in 2020.

The monetary authorities deemed it wise amid an inflation environment that they have described as only benign.

Speaking with Bloomberg TV, Bangko Sentral ng Pilipinas Governor Benjamin Diokno claimed that the Monetary Board could now start to reduce the benchmark rates again as early as February 2020.

If not February, it can start as late as the second quarter.

According to Phil Star, Diokno explained that the BSP is considering around 50 basis points next year. It will spend more time on the reserve requirement because he promised to reduce the requirement to a single digit by the end of his term.

His term ends in 2023.

The Board, under Diokno, cut interest rates thrice.

A total of 75 bps was cut this year, partly loosening a tightening cycle that witnessed interest rates increasing to 175 bps in 2018.

Inflation on that year reached 5.2 percent.

This rate was beyond the BSP’s target of 2 to 4 percent target because of the elevated oil and rice prices. The weak peso was also a factor.

Bangko Sentral ng Pilipinas Imposed Other Measures

The BSP also reduced the reserve requirement ratio for big and mid-sized banks. A total of 400 bps reduction happened.

Small banks’ reserve requirement experienced cuts of 200 bps.

All these are for stimulating economic activities.

Back on Nov. 14 and Dec. 12, the central bank adopted a prudent pause to enable past monetary actions to take effect across the economy.

The BSP chief explained that any monetary policy works with a type of lag. Stopping at specific points is necessary.

Lags usually last six to nine months.

Future Direction According to Diokno

Diokno also asserted that the central bank would continue to depend on data and evidence whenever setting the country’s monetary position.

The pro-growth BSP governor Diokno claimed that all these activities can help the achieve the Gross Domestic Product goals that the previous economic managers set.

The growth target is 6.5 to 7.5 percent by 2022.

Diokno added that BSP is happy with the latest assessment showing inflation averaging 2.4 percent in 2019.

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