MB member sees no need to cut rates until August
Lawrence Agcaoili (The Philippine Star) - June 12, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to keep interest rates steady until August due to the slight uptick in inflation to 3.2 percent last May, Monetary Board member Felipe Medalla said.

Medalla told participants of a conference on gearing up for external competitiveness that the BSP’s, policy-making Monetary Board is seen keeping interest rates unchanged on June 20 and Aug. 8.

“So my own personal forecast, we would not be changing policy rates for at least a couple of weeks. My own forecast is that (there will be) no change for at least two meetings,” Medalla said.

The central bank slashed interest rates by 25 basis points last May 9 due to easing inflation as well as the slower-than-expected gross domestic product (GDP) growth of 5.6 percent in the first quarter due to the delayed passage of the 2019 national budget.

This is a reversal of a tightening cycle that saw interest rates rise by 175 basis points in five straight rate-setting meetings from May to November last year due to elevated oil and food prices as well as a weak peso.

Inflation averaged 5.2 percent last year from 2.9 percent in 2017, exceeding the BSP’s two to four percent target.

Based on its latest assessment, the Monetary Board sees inflation averaging 2.9 percent this year and 3.1 percent next year.

“Inflation is going to be a little bit below three percent this year, a little bit higher than three percent next year. Therefore, there’s really no reason to change policy rates,” Medalla added.

According to Medalla, inflation would go down because of base effects and could even ease to two percent.

Medalla said there is no need for the central bank to make adjustments unless there is new data calling for rate adjustments.

“If you look at the chart of inflation, there’s a 16-month period when inflation was below two percent and was even below one percent at that time. So if something like that would happen, the economy is going to be very weak. Then you’ll have to make a position to counter that by maybe accelerating the reserve cuts or the policy rates,” Medalla added.

The central bank also slashed the reserve requirement for big and mid-sized banks by 200 basis points and for small banks by 100 basis points, freeing up about P210 billion into the financial system to boost economic activity over the next three months.

The first 100 basis point reduction in the level of deposits big, mid-sized, and small banks are required to keep with the central bank took effect last May 31.

The level for universal, commercial, and thrift banks would further be reduced by 50 basis points on June 28 and another 50 basis points on July 26.

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