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Interest rate, bank reserve requirement cuts seen in May

By: - Reporter / @bendeveraINQ
/ 05:05 AM March 18, 2019

The Bangko Sentral ng Pilipinas (BSP) is seen keeping key rates steady when the Monetary Board meets on Thursday to discuss the monetary policy stance, ahead of possible cuts not only in interest rates but also in the reserve requirement imposed on banks in May.

“Given the new BSP Governor’s recent dovish comments, there is a chance that the BSP could start cutting this month. However, with Governor [Benjamin E.] Diokno reiterating that policy will be data dependent (his comments were made after the inflation data for February) and the fact that the decision would require the approval of others in the [Monetary Board], we think the BSP will wait until May to adjust policy,” London-based Capital Economics said in a March 5 report titled “Cuts are coming.”

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Capital Economics noted that inflation already returned within the government’s 2 to 4 percent target range in February, as the rate of increase in prices of basic commodities slowed to a one-year low of 3.8 percent.

Headline inflation averaged 4.1 percent in the first two months, still slightly above the government’s target.

“We expect it to fall further in the months ahead on the back of lower food prices, and that inflation will break through the bottom of the 2 to 4 percent target range in the second half of this year,” Capital Economics said.

Last week, members of the Cabinet-level Development Budget Coordination Committee said they expected inflation to be within 3 to 4 percent this year.

“The [BSP] is also likely to start cutting the reserve requirement ratio soon. The governor mentioned cuts of 1-percentage point a quarter depending on the data. We suspect the first will also be in May,” Capital Economics said.

The banks’ reserve requirement now stands at 18 percent of total deposits, the highest in Asean.

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