At least 50 bps rates cut in 2020 – Diokno

Published December 18, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they could reduce the benchmark rates by at least 50 basis points (bps) in 2020 and more than that will depend on data available.

“At the moment we’re very comfortable where we are,” said Diokno Tuesday night.

“Now, whether that (interest rates cut) will come first quarter or the second quarter, let’s see.”

In giving his latest “forward guidance” or the likely direction that monetary policy will take in 2020, Diokno said his pronouncement of “at least” 50 bps cut is “better than being deliberately vague.”

“We want investors and businessmen to be prepared so we provide forward guidance,” he added.

As for the reduction in banks’ reserves requirement ratio (RRR), this was something the BSP could be more relax in the next years and could resume a more gradual decrease in RRR.

“I’ve said the reserve requirement will be cut to single digit – maybe around nine percent – by the end of my term (in mid-2023),” said Diokno. This year, the Monetary Board approved a 400 bps cut in RRR releasing more than ₱400 billion into the financial system.

“I have 14 quarters (to go in my term). So (that’s) 500 bps over 14 quarters. I am not in a hurry to cut RRR,” he said. At the start of 2019, the RRR was at 18 percent. It is now reduced at 14 percent. A gradual 500 bps reduction will bring it down to Diokno’s nine percent RRR target in three and a half years.

The Monetary Board’s next policy meeting, its first in 2020, will be on February 6.

Its most recent meeting, on December 12, saw the BSP keeping its “on-hold” stance, and deciding to keep the reverse repurchase rate or the overnight borrowing rate at four percent in 2019.

The BSP cut interest rates by a cumulative 75 bps this year on benign inflation which it estimates will end 2019 at an average 2.4 percent versus 5.2 percent in 2018.

Last year, the central bank had to increase key rates by a total of 175 bps to curb high inflation which peaked at 6.7 percent and also to temper exchange rate volatility at the time.

Diokno said inflation expectations remain well-anchored while the risks remain on the upside in 2020 and more on the downside in 2021. For the next two years, the BSP forecasts 2.9 percent inflation which is the middle ground of the two-four percent inflation target range.