Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Monday another policy interest rate reduction is possible before the end of the year.
Diokno, however, said the Monetary Board would study the economic data before it could consider another adjustment in benchmark interest rates.
“That [interest rate cut] is possible. The BSP will always be data-dependent, so we will evaluate,” Diokno told reporters at the sidelines of an event at the SMX Convention Center in Mall of Asia, Pasay City.
Diokno said it was appropriate to do “gradual” rate cuts “so you can monitor the developments.”
“That is the suggested move because any drastic move could be disruptive to the system,” he said.
Global debt watcher S&P Global Ratings said in a report that following policy rate cuts by 75 basis points so far in 2019, “we expect another 25 bps rate cut later this year [which] should bring the overnight reverse repurchase rate to 3.75 percent.”
“We anticipate a total rate cut of 75 bps in 2020. This would reverse the interest rate hikes during 2018 when capital outflow and inflationary pressures led the central bank to raise policy rates by 175 bps,” it said.
ING Bank Manila said the BSP was expected to be more data dependent going forward to see if there was a need to tweak its policy stance amid the benign inflation environment and the expected acceleration of economic growth.
Inflation in October 2019 dipped to a 42-month low of 0.8 percent from 0.9 percent in September, tempered mainly by base effects and slower increases in the prices of food and oil.
The October print was significantly slower than the peak of 6.7 percent in the same month last year. This brought the average inflation in the first 10 months to 2.6 percent, below the midpoint of the
target range of 2 percent to 4 percent this year.
The benign inflation environment prompted the policy-making Monetary Board of the BSP to cut the policy interest rates by 25 basis points to 4 percent on Sept. 26. The interest rates on the overnight deposit and lending facilities were also reduced to 3.5 percent and 4.5 percent, respectively.
The MB also cut the reserve requirement of banks by a total of 400 basis points to 14 percent this year in a bid to unleash more liquidity into the financial system. Analysts estimate that around P90 billion worth of additional liquidity is unleashed to the financial system for every 1 percent cut in RRR.