Bangko Sentral ng Pilipinas Governor Benjamin Diokno said local monetary authorities do not need to move in line with the US Federal Reserve’s action in the months ahead.
“We decide independent of the decision of the US Fed,” Diokno told reporters in an interview.
“As it is, there are two options on the part of the Fed—a 25-bps cut or a 50-bps cut… But definitely, it will cut,” Diokno said.
He said while the BSP action would be independent of the Fed decision, the latter’s move would be an additional input to the Monetary Board’s decision in its next meeting.
“Even before the decision of the Fed, we are already committed to cutting,” he said. He said the Monetary Board, the policy-making body of the BSP, might cut the interest rate first before the adjustment in the reserve requirement ratio.
The BSP will hold its next policy meeting in August. Diokno said that by that time, there would be additional information on the inflation rate and the second-quarter gross domestic product growth.
First Metro Investment Corp., the investment banking arm of the Metrobank Group, said it was expecting the BSP to further cut the reserve requirement ratios of banks by 2 percentage points and reduce policy rates by 50 basis points before the end of the year.
First Metro president Rabboni Francis Arjonillo said in a news briefing that the market would remain conducive for bond investments in the second half “as we anticipate the BSP to further cut the reserve requirement by another 2 percent and potentially reduce policy rates by 50 basis points from its current levels as inflation continues to drop.”
“These cuts should produce positive effects for the economy and the financial markets because there would be more funds available for consumers and businesses,” Arjonillo said.
Arjonillo said the market reacted positively after the announcement of the 2-percent RRR cut in May this year, from 18 to 16 percent. He said the 10-year bonds dropped to 5 percent from a high of 5.8 percent.
“The policy rate and RRR cuts are aimed at stimulating growth to propel the economy forward, to cheapen the cost of money, encourage borrowings, spur consumer spending, and secure the ability of the people to pay the loans and debts,” he said.
The Monetary Board cut the policy rates by 25 basis points to 4.5 percent on May 9 this year, the first time in more than six years, as inflation sustained its downward trajectory.