BSP Governor Benjamin Diokno told reporters on the sidelines of the Financial Education Stakeholders Expo another rate cut is still possible during the last rate-setting meeting of the Monetary Board for 2019 scheduled on Dec. 12.
Rate cut still possible before yearend — Diokno
Lawrence Agcaoili (The Philippine Star) - November 26, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has not totally closed the door on another interest rate cut before the end of the year as inflation likely bottomed out last month.

BSP Governor Benjamin Diokno told reporters on the sidelines of the Financial Education Stakeholders Expo another rate cut is still possible during the last rate-setting meeting of the Monetary Board for 2019 scheduled on Dec. 12.

“That is possible,” Diokno replied when asked about the projection of S&P Global Ratings of another 25 basis points rate cut for this year.

In its latest Global Banking Country-by-Country Outlook 2020, the debt watcher said the Philippine central bank is likely to slash interest rates by another 25 basis points this year and by 75 basis points next year to completely unwind its tightening cycle done in 2018.

The BSP chief said the Monetary Board remains data dependent in setting the country’s monetary policy stance.

The central bank has slashed interest rates thrice this year with a cumulative reduction of 75 basis points, partially unwinding a tightening cycle that saw benchmark rates increase by 175 basis points last year.

The BSP believes inflation has bottomed out at a 43-month low of 0.8 percent in October from 0.9 percent in September and would start to rise in the coming months after averaging 2.6 percent in the first 10 months.

Based on its latest assessment, the Monetary Board expects inflation to average 2.4 instead of 2.5 percent this year.

However, inflation is expected to pick up to 2.9 percent in 2020 and 2021 as upside risks over the near term emanate mainly from the potential impact of the African swine fever outbreak on food prices and from potential volatility in oil prices amid geopolitical tensions in the Middle East.

He said the Monetary Board took a prudent pause last Nov. 14 as there is the need to monitor the impact of previous actions, including the rate cuts and the lowering of the level of deposits banks are required to keep with the BSP.

Diokno said monetary easing should be done gradually since drastic rate cuts could be disruptive and could be misinterpreted as a desperate move on the part of the BSP.

“We are not desperate. In fact our policy (stance) now is appropriate for where we want to be. We plan to grow at 6.5 percent, so there is no rush, but we will be data dependent,” the BSP chief said.

BENJAMIN DIOKNO
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