April rate cut ‘on the table,’ BSP says

Eli Remolona Jr. —CONTRIBUTED PHOTO

MANILA, Philippines – An interest rate cut in April is still “on the table” of the Bangko Sentral ng Pilipinas (BSP), Governor Eli Remolona Jr. said while stressing that monetary authorities were still on easing mode despite the surprise pause last month.

Speaking to members of the Tuesday Club, Remolona said the March inflation print would be a key factor for the policymaking Monetary Board in deciding whether to resume easing at their April 10 meeting or defer another rate cut.

READ: In surprise move, BSP keeps key rate steady

“There are still a lot of numbers to look at. Of course, we’re recalibrating our models to take account of uncertainty,” he said.

“Let me say that we see ourselves still on the easing cycle. We are expecting to cut a few more times this year. But how much, we haven’t determined,” he added.

At its first policy meeting for this year, the central bank decided to keep the benchmark rate that banks typically use as a guide when pricing loans untouched at 5.75 percent.

The move defied market expectations, with Remolona admitting that it was not an easy decision for monetary authorities, who were wary of uncertainties coming from a slew of tariff actions in the United States.

Instead, the BSP decided to deliver a jumbo cut to the reserve requirement ratio (RRR) of banks, a move that was expected to unleash over P300 billion in additional loanable funds to the country’s growing economy.

But after inflation posted a slower-than-expected print of 2.1 percent in February, many analysts had said the BSP could have more room to cut borrowing costs again to support an economy that grew below the government’s target last year.

More RRR cuts?

In the same interview, Remolona said the RRR –– currently at 5 percent for big banks –– was still “too high”, suggesting that further cuts to the cash requirement is possible.

“But it can’t be sudden because we need to control the liquidity that’s coming out,” he said.

The RRR refers to the certain amount of deposits that banks must set aside as standby funds, which do not generate returns because they cannot be used for lending activities. This is to ensure that lenders are able to meet their liabilities in case of sudden withdrawals.

By easing such a requirement, banks now have more available funds to lend, which can create easier financial conditions for the economy.

“There’s a subtle difference between the policy rate and the reserve requirement. When you reduce either one, it stimulates the economy. So, in that sense, they’re roughly the same.,” Remolona said.

“But the policy rate, there’s a kind of cycle, you don’t want to lower it and then raise it the next time. You want to just keep going in baby steps. The reserve requirement, you can just stop. You lower it, that’s it,” he added.