By LEE C. CHIPONGIAN
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the BSP, similar with other central banks that are lowering interest rates, has the same leeway to further adjust the policy stance.
“(The) interest rates globally will be low for the longest time,” Diokno told reporters in his first “GBED (Gov. Ben E. Diokno) Talks” press chat with the members of the BSP press corps Friday.
The implication for the Philippines, he said, is that there could still be some rates adjustment to go for.
“We increased interest rates by 175 basis points (bps) in 2018 to address inflation due to the increased prices of oil… now (in 2019) we have managed to decrease the policy rate by 75 bps so in reality we still have a lot of monetary policy space and also fiscal space,” said Diokno.
He reiterated that that despite the monetary and fiscal space, they chose to “pause” in their rates cutting last December 12, which was the last Monetary Board policy meeting in 2019.
Diokno said that if there are “some changes” in outlook and data then he will not hesitate to tweak his previous “forward guidance” to the market.
“My forward guidance (is that) we plan to reduce the RRR (reserve requirement ratio) to single digit by the end of my term, which is about 14 quarters from now. We have a lot of monetary space to effect some changes,” he added.
One of potential changes to the data that could arise is from the impact of the Taal Volcano eruption to inflation and price pressures.
Diokno, at this point, said the BSP is looking at the contribution of Batangas province as the most affected to both inflation and the GDP. In the Philippines, the largest GDP contributors are the National Capital Region, the CALABARZON and Region 3.
The Batangas calamity however is not worsening. For now, while the BSP is still starting to assess preliminary data on the possible impact of the Taal Volcano eruption, Diokno said at this point, “things are getting better.”
“NEDA has already made an assessment, on our part, we will go along with NEDA,” said Diokno. “It’s not going to affect too much both our inflation and growth path. (Also) the impact on agriculture is not that big.”
“The BSP will update its assumptions and forecasts as new information comes to light, in time for the Monetary Board’s first meeting on monetary policy on February 6,” said Diokno.
The BSP currently has a 2.9 percent inflation forecast for 2020. The current manageable inflation environment of 2.5 percent average end-of-year which is within the two-four percent government target until 2022, as well as the financial system’s ample liquidity to back up the increased economic activity for a nation that keeps on growing, bodes well for the growth sustainability.
For now and over the medium term, the BSP chief reiterated that the Philippines “has sufficient policy space, both monetary and fiscal, to deal with external shocks and their spillovers to the domestic economy.”