Diokno: 50 bps rate cut, slow RRR reduction next year
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Wed, 18 Dec 2019 15:00:40 +0000
The central bank is likely to cut interest rates by at least 50 basis points next year, but will take it slow in terms of reducing banks’ reserve requirement ratio (RRR), Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said.
“For policy cuts, at least 50 basis points (bps). We’re observing what the other central banks are doing,” he told reporters in a press chat on Tuesday night.
Diokno highlighted that other central banks are currently on an unwinding mode.
“What will be the implication if they are cutting and then we keep our rates? Hot money will flow inward the Philippines at an abnormal rate, we don’t want that, we don’t want hot money,” he said.
“They are taking advantage of the Philippines. The characteristics of hot money is that they come in when things are nice and they will exit as soon as things are bad,” the BSP chief added.
At their last rate-setting meeting on December 12, the Bangko Sentral’s policymaking Monetary Board decided to maintain the overnight borrowing, lending and deposit rates at 4 percent, 4.50 percent and 3.50 percent, respectively.
In terms of the RRR, Diokno is “not in a hurry” to trim the liquidity-mopping tool as he still has 14 quarters to hit his personal target of reducing the current 14-percent ratio to single digit of 9 percent by the end of his term in 2023.
“We have already reduced the RRR by 400bps. So I’m not in a hurry to cut the RRR because I have 14 quarters,” he said.
The central bank chief also said that monetary authorities are evaluating the impact of the past RRR reductions to the financial system, particularly to bank lending.
“We evaluate where do these banks place it, do they lend it? Because if they will just return it to us, it will be very costly for us (because we’ll pay interest). We want them to lend to small-scale industries. We want them to lend,” he said.
RRR is the proportion of current deposits that banks need to keep with the BSP against the sum they can loan out to borrowers.