MANILA – Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno said any policy easing move can be done not only through policy rate cuts but also by slashing the reserve requirement ratio (RRR) by as much as 400 basis points over the next four quarters.
In an interview over ABS-CBN News Channel Tuesday, he clarified issues claiming that any cut in the BSP’s policy rates will be made to benefit the Duterte administration’s infrastructure program dubbed “Build, Build, Build.”
This, as he earlier stressed the need for an in sync monetary and fiscal policies.
Diokno said future reductions in the BSP’s policy rates will not be made to guarantee funds for the government’s infrastructure program since projects under it are already well-funded through combination of government funds and loans from the governments of China and Japan, among others.
He stressed that “if there’s a need, if we have to ease it’s because our reserve requirement ratio is very high.”
In 2018, BSP’s policy-making Monetary Board (MB) slashed the banks’ RRR by 200 basis points to 18 percent but this remains among the highest in the region.
The late BSP governor Nestor Espenilla Jr. vowed to bring the RRR level to single digit supposedly by the end of his term in 2023 as part of his bid to make monetary policy more market-based.
Diokno, who was appointed to head the BSP last March 4, said he believes that there is room for policy easing given the continued decline of domestic inflation rate, which last February slowed to 3.8 percent after peaking at 6.7 percent in September to October 2018.
“I think there’s room for monetary easing. Could be one percentage point every quarter for the next four quarters. We’ll look at the data and see,” he said.
The BSP chief, however, pointed out that any cut in the RRR will be studied properly since a one percent slash in banks’ reserve requirement, which is the percentage of bank deposits and deposit substitute liabilities that should be set aside and deposited with the BSP, releases about P90-P100 billion in domestic economy.
He also expects inflation “to be right smack at three percent” this year, within the two to four percent target band until 2022.
“All these will factor in when we make a decision at some point. Maybe as early as this week or could be next month,” he said.
The Monetary Board (MB) hiked the BSP’s key policy rates by a total of 175 basis points in 2018 to help address inflationary expectations as price pressures rise due to supply-side factors.
The MB will have its next rate setting meet on March 21, the second for 2019. (PNA)