Central bank: 25 bps cut before yearend
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Tue, 27 Aug 2019 16:31:16 +0000
PHILIPPINE monetary authorities are still on monetary easing mode as Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said a 25-basis-point (bps) cut in interest rates was still on the table this year.
“We will cut another 25 bps before the end of the year and then we will review, as we remain data-dependent,” Diokno told reporters during the Economic Journalists Association of the Philippines (EJAP) Economic Forum in Manila on Tuesday.
The possible reduction is on top of the combined 50-bps cut the central bank implemented in May and August that brought overnight borrowing, lending and deposit rates to 4.25 percent, 4.75 percent and 3.75 percent, respectively.
Diokno pointed out that the rationale behind the monetary policy easing includes developments in the external environment.
“I am not saying that we are [going to] do it aggressively, but we are reading what is happening. Can you imagine if we don’t do something as the world reduces interest rates? We will be swamped with speculators here in this country, so on that basis alone, we have to really think more aggressively on what the others are doing,” he said.
In his speech during the forum, Diokno stressed that protectionist policies and geopolitical tensions continued to dominate the global growth narrative.
According to him, greater global economic uncertainty may lead to higher risk aversion, as international investors turn to safe-haven assets, resulting in volatility in domestic financial markets.
“When this happens, this could have adverse consequences on our price and financial stability objectives, and ultimately on the country’s growth momentum,” the Bangko Sentral governor warned.
In response, central banks around the world, including the BSP, have responded by easing their respective policy rates to stimulate their domestic economies, he said.
“In fact, some central banks have surprised the markets by reducing their rates by more than what was expected,” Diokno added.
This, he said, indicates that the global monetary policy easing cycle could gather momentum and last longer and deeper than previously anticipated.
“Despite all this, we remain optimistic about the prospects of the Philippine economy,” he added.