Diokno cites leeway for policy cut

March 10, 2019
Benjamin Diokno

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said any changes in the policy rates as well as the reserve requirement ratio (RRR) will be made based on latest data.

“Given the decelerating inflation in the Philippines, there’s an opportunity for monetary easing but as I’ve said that would be dependent on the data that will be given to us by our technical staff who are world class,” he said during his first briefing as BSP chief Friday.

Domestic rate of price increase continued its slide, with the February 2019 level already within the 2 to 4 percent target until 2022 at 3.8 percent. Average inflation in the first two month this year stood at 4.1 percent.

The elevated inflation rate last year, which was caused by supply-side factors, made monetary officials hike the BSP rates by 175 basis points to rein in inflation expectations.

With the continued easing of inflation rate, economists and authorities alike said this gives the BSP’s policy-making Monetary Board (MB) leeway to cut key policy rates.

However, monetary officials stressed that the adjustment must be made based on data that would come out until the MB’s policy rate setting meet on March 21.

Diokno, who replaced the late Nestor A. Espenilla Jr., said “there’s room for monetary policy easing if the present situation continues.”

“When? We would announce it at an appropriate time,” he said.

“We have to be more careful. The important thing is really timing,” he added.

Regarding the RRR, which to date is at 18 percent, Diokno said any change will also be based on latest data.

“As I said, our policy will be determined by analyses, evidenced-based, and will be decided upon by the Board,” he added.

BSP Deputy Governor Diwa Guinigundo told journalists Friday that the BSP’s current monetary policy stance remains appropriate.

He said while there are several factors that allow for the cut in the BSP rates, there should be a holistic assessment of the current situation.

For one, he said the global slowdown, which is expected to result to reflow of capital to emerging markets as well as decline of oil prices among others, is a downside risk to Philippines inflation rate.

“If there will be reflow of capital, you will have to also consider an appropriate monetary policy,” he said, citing that inflation is expected to be lower this and next year, with averages currently seen at 3.1 percent and 3 percent, respectively.

Guinigundo, however, stressed that although the lower inflation rate is an opportunity for monetary policy cut, anything can happen between March 8 and March 21.

“Any information can be made available that will be material to your final decision on March 21. So it’s very difficult, even for the government, to be committing to a certain timing, phasing and even the magnitude of monetary adjustment because your decision will also be affected and shaped by the developments between now and March 21,” he added.