Diokno: Policy rate, RRR cuts ‘inevitable’
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Mon, 29 Apr 2019 16:21:42 +0000
REDUCTIONS in policy rates and in banks’ reserve requirements are inevitable and will happen this year, according to the Bangko Sentral ng Pilipinas (BSP).
“Those two things are really inevitable,” BSP Governor Benjamin Diokno told members of the Financial Executives Institute of the Philippines (Finex) and the Management Association of the Philippines (MAP) during their joint general membership meeting in Makati City on Monday after he was asked on the timing of monetary policy easing and the expected cuts on the reserve requirement ratio (RRR) of banks.
“We came from a year [when] we increased interest rates by 175 basis points to address the elevated inflation so as things normalize. Naturally, we should move toward normalization,” he said.
On the RRR, Diokno said there was a clear case that the reserve requirement of banks in the country was one of the highest in Southeast Asia.
The RRR is the proportion of deposits that banks need to keep with the central bank against the sum they can loan out to borrowers. It is currently at 18 percent following two cuts last year.
“We need to reduce that [for banks] to be more competitive. Before the end of my term, the reserve ratio should be at least single digit,” he added.
Asked for more details, Diokno later told reporters that these reductions “will come this year.”
Above-target inflation prompted the Bangko Sentral’s policymaking Monetary Board to hike key interest rates five consecutive times last year, only pausing after consumer price growth began easing in November.
A third pause resulted from the last policy meeting on March 21, with monetary authorities noting the need for more data.
Last week, Diokno said the country’s monetary policy remains “appropriate,” but warned that further risks could emerge from a prolonged El Niño and higher-than-expected increase in global oil and food prices.
“[O]ur prevailing monetary policy stance remains appropriate, given the confluence of easing inflation and firm growth dynamics,” he added.
That said, Diokno stressed that the central bank “will remain data-driven at all times in our policy decision-making and our actions will be determined by our inflation outlook.”
“The BSP remains focused on safeguarding and promoting price stability conducive to a balanced and sustainable economic growth,” he added.
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