By Lee C. Chipongian
The data-dependent Bangko Sentral ng Pilipinas (BSP) found no reason why they should reduce interest rates by as much as 50 basis points (bps) last Thursday, according to Deputy Governor Francisco G. Dakila Jr.
But, Dakila said for the next months of 2019, there could be another policy action as was telepgraphed earlier by BSP Governor Benjamin E. Diokno who said he’s looking at a cumulative 50 bps cut for the remainder of the year which now includes the decision to cut rates by 25 bps this week.
“Again we remain data dependent and that is the direction communicated by the governor,” he said after the press briefing on monetary policy. The BSP has so far cut rates by 50 bps this year. The first 25 bps reduction was on May 9.
Dakila said that while there was flexibility to adjust rates lower with benign inflation and stable or acceptable assumptions in global oil prices and foreign exchange rate, it wasn’t enough to convince Monetary Board members to vote for a higher 50 bps cut.
“There was no compelling factor that says you have to do a 50 bps adjustment at this time,” said Dakila.
And, even with the slower-than-expected second quarter 5.5 percent GDP growth, the BSP still opted for half of the 50 bps rather than giving what the market had expected based on the assessment that the GDP turnout is still an after effect of the budget impasse in the first four months of the year.
Director for the Department of Economic Research (DER), Dennis Lapid, said the moderate 5.5 percent growth is not enough reason for a higher rate cut because they expect the government’s catch up spending to start manifesting in the second half.
“(The 25 bps decision) is also predicated on the projected recovery in the second half because government spending (accelerated) to strenthen the second half (growth). The addition of stimulus is also coming from the fiscal side. As inflation trends downwards there will be support also from private consumner spending as well,” said Lapid.
“As we noted, public construction is still down in the second quarter so there’s still a need for catch up,” said Dakila.
In past Monetary Board policy meetings, there have been five instances when the decision was to move rates by 50 bps, such as in 2008 and 2009.