‘Rate cut first before easing RRR’
Credit to Author: JORDEENE B. LAGARE| Date: Wed, 10 Jul 2019 16:21:04 +0000
A reduction in interest rates is likely to come first before the banks’ reserve requirement ratio (RRR) is trimmed, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.
“Palagay ko mauuna ‘yung interest rate cut bago [ang] reserve requirement (I think the interest rate cut will come first before the reserve requirement is eased),” Diokno said on the sidelines of the 2019 Awards Ceremony and Appreciation Lunch for BSP Stakeholders at the central bank’s headquarters in Manila on Wednesday.
His remarks come after monetary authorities last month took what it called a “prudent pause” on slashing interest rates — retaining overnight borrowing, lending and deposit rates at 4.5 percent, 5 percent and 4 percent, respectively, after it cut policy rates by 25 basis points (bps) — on the back of what he described then a “manageable inflation outlook” and “firm domestic growth prospects.”
“Latest baseline forecasts indicate that inflation remains likely to settle within the target range of 3 percent ± 1 percentage point for both 2019 and 2020, while inflation expectations have moderated further,” Diokno had said.
In May, the BSP’s policymaking Monetary Board reduced the RRR of universal and commercial banks by 200 bps from 18 percent to 16 percent; of thrift and savings banks by 200 bps from 8 percent to 6 percent; and of rural and cooperative banks by 100 bps from 5 percent to 4 percent.
An initial 100-bps reduction took effect on May 31, followed by a 50-bps cut on June 28. A 50-bps decrease is expected by July 26.
The Monetary Board’s next policy meeting is set for August 8.
In an email, ING Bank Manila senior economist Nicholas Antonio Mapa said Diokno had embarked on the task to lower reserve requirements after his immediate predecessors, Amando Tetangco Jr. and the late Nestor Espanilla Jr., had “laid the groundwork for a successful and almost seamless exit from an era of high RRR.”
“As such, we can expect the BSP to slash borrowing costs (RRP) further as inflation grinds lower, penciling a RRP cut as early as the August meeting, as 2Q GDP (second-quarter gross domestic product) is expected to fall slightly below potential,” he said.
“Meanwhile, we can expect reductions [in] the RRR to be carried out at a non-monetary policy meeting, perhaps after the September 26 policy meeting via a phased 50 bps reduction in end-October and another 50 bps by [yearend],” he added.
The post ‘Rate cut first before easing RRR’ appeared first on The Manila Times Online.