No more rate, RRR cuts this year – Diokno

MANILA,Philippines — The Bangko Sentral ng Pilipinas (BSP) said Monday it would take a pause in monetary policy easing for the rest of 2019, after delivering a series of rate cuts in both policy rates and bank reserves to boost economic activity.

In an interview with the ABS-CBN News Channel, BSP Governor Benjamin Diokno said the central bank would no longer cut policy rates and banks’ reserve requirement ratio (RRR) this year.

“On the cuts, we’ll pause for a while,” Diokno said. “There will be no policy cuts this year and no more relaxation of the reserve requirement.”

The central bank 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 BSP has two more rate-setting meetings remaining for 2019 scheduled on Nov. 14 and Dec. 12. 

It also recently approved the reduction of the RRR for big and mid-sized banks by 100 basis points effective December. This is on top of the 100 basis point cut in the RRR for universal, commercial, thrift and rural banks which took effect this November.

This brought the total RRR reduction to 400 basis points for big and mid-sized banks, while the RRR for small banks has been lowered by 200 basis points.

According to central bank officials, they expect gross domestic product (GDP) growth to settle at a range of 5.8 percent to six percent for the third quarter and 6.5 percent for the fourth quarter.

This would bring the full-year GDP numbers close to the lower end of the government’s six to seven percent target, according to the BSP.

BSP Deputy Governor Francisco Dakila earlier attributed this optimism to the normalization in government spending as well as the benign inflation environment that could boost consumption especially during the Christmas season.

According to the BSP’s Department of Economic Research, inflation for October may settle within the 0.5 percent to 1.3 percent target range.

The BSP expects inflation to ease to 2.5 percent this year before accelerating slightly to 2.9 percent for 2020 and 2021.