The country’s central bank chief remains keen on reducing domestic interest rates further —by as much as half a percentage point, as he had initially announced late last year—in the hopes of helping the Philippine economy return to its high growth pace this year.
That being said, however, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the timing of further monetary policy easing would remain “data dependent,” which includes as assessment of not only data from the recent past, but forecasts of upcoming economic trends, as well.
“Yes, we still see a 50-basis point reduction this year,” he told reporters during a briefing at the weekend, echoing his statement at the end of 2019.
The central bank chief noted that the policy making Monetary Board raised interest rates by a total of 175 basis points in 2018 in a delayed but ultimately successful effort to rein in inflation that was prompted by, among others, a tightness in rice supply, aggravated by an excise tax hike.
“We’re still trying to unwind this [series of interest rate hikes],” Diokno said, explaining that the central bank had already rolled back its key overnight borrowing rate by 75 basis points last year after consumer prices started to normalize.
“We still have a long way to unwind [interest rates],” he added, amid market speculation that the BSP may opt for an early easing of market liquidity purse strings—possibly as early as the Monetary Board Feb. 6, 2020 meeting—to help counteract the muted economic growth recorded in 2019.
BSP’s key overnight borrowing rate currently stands at 4 percent.
Providing a counterweight to the expected rate cut, however, is the central bank’s belief that prices of basic goods and services will likely move higher in January due to higher food prices, aggravated by higher excise taxes on tobacco products.
Last Friday, BSP economists said they expected the inflation rate in the first month of 2020 to have risen between 2.5 and 3.3 percent.
“Higher prices of LPG and selected food items as well as adjustments in the excise taxes on tobacco products are the primary sources of upward price pressures for the month,” the BSP’s Department of Economic Research said.
At the same time, however, inflation could be tempered by lower electricity rates in Meralco serviced-areas and rollbacks in fuel prices during the month.
The central bank said it expected prices of basic goods and services in the Philippines to inch up in 2020 as the inflation rate continued to “normalize” then ease up in 2021. INQ