BSP likely to relax monetary policy some more, says FMIC

MANILA – The Bangko Sentral ng Pilipinas (BSP) is likely cut key interest rates by another 50 basis points in the coming months, First Metro Investment Corp. (FMIC) said Monday.

It is likely that the central bank will implement two interest rate cuts of 25 basis points each, said FMIC president Rabonni Arjonillo.

“We think the market will remain conducive to bond investments in the second half as we anticipate the BSP to further cut the reserve requirement by another 2 percent and potentially reduce policy rates by 50 basis points from its current levels as inflation continues to drop,” he said.

Arjonillo said the cuts would most likely take place in September. Inflation peaked to a nine-year high of 6.7 percent in September and October 2018 .

The policy-setting Monetary Board holds a meeting every six weeks, with the next meeting penciled in for August 8. Succeeding meetings will follow on September 26, November 14, and December 12.

At present, the overnight borrowing rate is at 4.5 percent, while the overnight lending rate is at 5.0 percent, with the overnight deposit rate at 4.0 percent, after the central bank lower policy rates in May.

Last week, BSP governor Benjamin Diokno opened the door to more rate cuts, noting that the country has gained “a lot of policy space.”

“The policy rate and RRR cuts are aimed at stimulating growth to propel the economy forward, to cheapen the cost of money, encourage borrowings, spur consumption spending, and secure the ability of the people to pay for loans and debts,” he said.

In terms of the reserve requirement, Arjonillo said the BSP is expected to reduce this by another 200 basis points to 14 percent by the end of the year.

“The Philippines’ reserve ratio is much higher compared with our neighbors in Southeast Asia – Indonesia (6.5 percent), Malaysia (3.5 percent), Vietnam (3.0 percent), and Thailand (1.0 percent),” he said.

The reserve requirement ratio – the amount of cash a bank must hold in its reserves against deposits made by customers – will be cut to 16 percent by July 26.

“These cuts should produce positive effects for the economy and the financial markets because there would be more funds available to consumers and businesses,” said Arjonillo.

Diokno has said he wanted the reserve requirement ratio down to single-digit levels during his term, which ends in 2023. (GMA News)


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