By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said yesterday they will likely reduce benchmark rate first before another series of reserve requirement ratio (RRR) cut is implemented, possibly in the second half of this year.
“(Is there a) possibility? Of course, of course,” Diokno told reporters on the sidelines of the BSP’s annual stakeholders’ awarding ceremony on Wednesday.
He said it is possible that the Monetary Board, which he chairs, will decide on an interest rate reduction sometime this year and then follow it up with an RRR cut.
“We’ll wait for inflation for the month of July and by that time, the second quarter growth (will also be released). Those are the important metrics (we will wait for),” said Diokno.
The next Monetary Board policy meeting is on August 8. The BSP chief said they will be watching out for the second quarter GDP growth and the August inflation. He said earlier that he expects inflation to fall below two percent by the third quarter. As of end-June, inflation average was at 3.4 percent, within the two-four percent government target.
The Monetary Board cut the key rate by 25 basis points (bps) last May 9, and by May 31, has slashed RRR by 100 bps. In total, the BSP has decided to reduce big banks’ RRR by two percent, or from 18 percent to 16 percent. The RRR of thrift banks and rural banks were also decreased.
Diokno also commented that at the moment, they are not in the foreign exchange market. He has said that the country’s gross international reserves (GIR) are enough to go against a speculative market to protect the peso versus the US dollar.
He said there are opportunity costs in maintaining a high GIR level, currently at $85 billion. But, what can the BSP do when funds are flowing in, said Diokno. With a hefty reserves, he said the BSP is not “participating lately” in the exchange market.
The peso has remained stable at the P51 level.
“(The BSP) daily they ask guidance from me (on the exchange rate market). Don’t intervene,” said Diokno.