Diokno sees earlier action on rate cut, RRR reduction

CAPAS, TARLAC, Philippines — Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the next monetary action through another interest rate cut or the reduction of the reserve requirement ratio could come as early as this month due to easing inflation.

“It might come sooner than later. So I think it won’t reach November or December to be sure for both,” Diokno told reporters during the signing of a memorandum of understanding between the BSP and the Bases Conversion and Development Authority (BCDA) for the planned currency production facility in the New Clark City.

The BSP chief already signaled another 25 basis points rate cut before the end of the year.

Diokno said the RRR cut has always been on the agenda of the BSP.

“It may come, our next meeting is on Sept. 26 and we have several meetings before that. It is always on the agenda,” Diokno said.

Inflation eased to a 35-month low of 1.7 percent in August from 2.4 percent in July, bringing the average to three percent in the first eight months.

“As you know inflation picture is really getting brighter and brighter. We are hoping it will be below two percent again for the next two months,” Diokno said.

The BSP chief expects inflation to ease to an average of around two percent in the third quarter before picking up in the fourth quarter.

“Because inflation peaked in September and October last year, due to base effects and oil prices continue to go down, electricity prices continue to go down, food prices are stable and going down in the case of rice. So the prospects are bright,” Diokno said.

The BSP lifted interest rates by 175 basis points between May and November last year to prevent inflation from spiraling out of control.

The tightening cycle, soft markets due to the trade war between the US and China as well as the delayed passage of the 2019 national budget dragged the country’s economic growth to the slowest pace in four years.

The country’s GDP growth slowed to 5.5 percent in the second quarter from 5.6 percent in the first quarter, bringing the average to 5.5 percent in the first half – lower than the six to seven percent growth target set by economic managers.