Diokno: BSP likely done with rate cuts this year

MANILA, Philippines — Monetary authorities are likely done with their easing cycle at least this year after slashing interest rates by 75 basis points due to the continued downtrend in inflation, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

“It’s likely closed. I think everybody is happy,” Diokno said.

The BSP has two more Monetary Board meetings remaining for 2019 scheduled on Nov. 14 and Dec. 12.

The Monetary Board has delivered three rate cuts this year, 25 basis points each last May 9, Aug. 8, and Sept. 26 as part of an easing cycle amid the continued downtrend in inflation as well as slower-than-expected gross domestic product (GDP) growth.

The central bank believes the benign inflation outlook provides room for a further reduction in policy rate to support economic growth and reinforce market confidence.

Inflation fell to 0.9 percent in September from 1.7 percent in August, bringing the average to 2.8 percent in the first nine months or well within the BSP’s two to four percent target.

According to Diokno, the subdued pace of global economic activity continues to temper the inflation outlook for the country.

Diokno also said the central bank is studying the possibility of further lowering of bank’s reserve requirement ratio.

The BSP has so far slashed the reserve requirement ratio for big and mid-sized banks by 300 basis points and for small banks by 200 basis points releasing about P500 billion in additional funds into the financial system to boost economic activity.

Diokno said the BSP may keep the pace of reduction at 300 basis points per year or could deliver a reduction of 50 basis points per quarter. “It depends on inflation dynamics,” he said.

The last tranche of the reduction is scheduled to take effect in November and the BSP is still studying if a reduction is still possible before the end of the year.

 “We are looking at the data, if it is possible why not. It’s not yet closed,” Diokno said.

According to Diokno, important data include inflation and the third quarter GDP growth as well as the latest World Economic Outlook of the International Monetary Fund (IMF).