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Diokno promises another interest rate cut before year-end

By: - Reporter / @daxinq
/ 05:25 PM August 27, 2019
Diokno promises another interest rate cut before year-end

BSP Gov. Benjamin Diokno (File photo by EARVIN PERIAS / Philippine Daily Inquirer)

MANILA, Philippines — Local interest rates will go down further before the end of the year, as the prevailing low inflation regime will allow the central bank to pump prime the Philippine economy with more liquidity and make up for weaker-than-expected growth in the first half.

Thus said the chief of the Bangko Sentral ng Pilipinas (BSP), who added that he would also want to see greater evidence of how the financial system used the cash released from the recently completed cuts in banks’ reserve requirement ratios before committing to further easing moves.

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Speaking before members of the Economic Journalists Association of the Philippines (EJAP) on Tuesday, BSP Governor Benjamin Diokno said at least one more small interest rate cut is in the offing.

“You’ll get your 25 basis points [cut] before the end of the year,” he said, when asked whether he remains committed to his earlier dovish statements on monetary policy.

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The central bank’s policy-making Monetary Board reduced its key overnight borrowing rate – on which banks base their own rates for commercial loans – by a quarter of a percentage point earlier this month on the back of easing inflation.

The overnight borrowing rate now stands at 4.25 percent, with Diokno already having reduced it twice, by 25 basis points each this year. The monetary easing is part of broader moves to roll back interest rates that were hiked by a total of 175 basis points last year in response to a spike in consumer prices that brought the inflation rate to its highest level in nine years.

Diokno stopped short of committing to further rate cuts, however, saying the “data dependent” the central bank will review all available information – including the policy moves of other central banks overseas – before deciding on what to do next.

The BSP chief also said he is still intent on further reducing banks’ reserve requirements to single-digit levels before the end of his term in 2023, but added that announcements on future adjustments will be made in the same way the previous cut was communicated to the public.

“Our policy is that we’ll announce it on a quarterly basis,” he said, explaining that the Monetary Board meets every week to tackle industry issues like bank reserves. “We’re not ready to announce it yet.”

Last May, the central bank preemptively announced a 200-basis point reduction in the reserve requirement from 18 percent to 16 percent staggered over a three-month period a few days ahead of the policy’s actual implementation.

“That’s what we plan to do so that the banking sector can prepare what to do with the extra money that they’ll have,” Diokno said of any future adjustments, adding that every 100-basis point cut in bank reserve levels releases as much as P100 billion of liquidity into the local economy.

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“[Announcing it early] will give them time to prepare,” he said.

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TAGS: Bank, Benjamin Diokno, BSP, Business, business news, Interest rates‎, local news, News, Philippines news updates
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