Capas, Tarlac—Bangko Sentral ng Pilipinas Governor Benjamin Diokno on Friday said cutting the benchmark policy rates again is almost certain during the next meeting of the Monetary Board later this month.
At the sidelines of a tour of the New Clark City facilities organized by the state-run Bases Conversion and Development Authority, Diokno said another cut in interest rates was possible amid the continued deceleration in inflation rate.
“We are hoping that inflation will be below two percent again for the next two months. Oil prices continue to go down, electricity prices continue to go down.
Food prices are stable and going down… ,” he said.
“So the prospects are bright. It might come sooner than later. And so I think it won’t reach November and December to be sure,” he said.
Diokno further said the Monetary Board was studying if there could be a simultaneous cut in policy rates and reserve requirement which, at 16 percent, remained the highest in the region.
“It may come… So our next meeting is on Sept. 26. It can be simultaneous… It is always in the agenda,” he said.
The inflation rate in August further slowed to a 35-month low of 1.7 percent from 2.4 percent a month ago. Economists said the development could prompt monetary authorities to further reduce the policy interest rates in their meeting this month.
The Philippine Statistics Authority said Thursday the slowdown was due to slower increases in the prices of food and non-alcoholic beverages. The August print was the slowest since the 1.7 percent in September 2016. It was also significantly slower than the 6.4 percent in August 2018.
The August figure brought the average inflation in the first eight months to 3.1 percent, well within the target range of 2 percent to 4 percent earlier set by the government for 2019.
The August 2019 inflation of 1.7 percent was within the BSP’s forecast range of 1.3 percent to 2.1 percent for the month.
ING Bank Manila senior economist Nicholas Mapa said earlier food inflation, the main culprit for higher inflation in 2018, was the main reason for the sharp deceleration in price trends this year.
He said with inflation careening below the BSP’s own target, Diokno would deliver on his pledge and cut policy rates by an additional 25 bps at the Sept.26 meeting.
“Monetary easing would also make sense given that the second-quarter GDP growth has slid to 5.5 percent, well below the government’s 6-7 percent fighting target for the year. Meanwhile, we also expect the BSP to roll back its reserve requirement ratio (RRR) by 100 bps in the fourth quarter,” Mapa said.
The policy-making Monetary Board of the BSP on Aug. 8 reduced the overnight borrowing rate by 25 basis points to 4.25 percent, taking into account mainly the continued downward trajectory of the inflation rate.
The interest rates on the overnight deposit and lending facilities were reduced to 3.75 percent and 4.75 percent, respectively.