Bangko Sentral's Diokno says to 'go slow' on interest rate cuts this year

Michelle Ong, ABS-CBN News

Posted at Jan 27 2020 09:34 AM | Updated as of Jan 27 2020 03:24 PM

Bangko Sentral ng Pilipinas’ (BSP) new governer, Benjamin Diokno at work shortly after an interview with Cathy Yang for ANC’s The Boss, held at the BSP headquarters in Manila on March 12, 2019. George Calvelo, ABS-CBN News

MANILA -- (UPDATE) Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Monday he would "go slow" on monetary policy easing this year, saying the economy was in a "nice place" of strong growth and within target inflation.

The central bank has "a lot of room" to unwind the 175-basis point interest rate hike from 2018, Diokno said, ahead of the monetary board's first meeting for the year on Feb. 6. He cut rates by 75 points in 2019 and earlier signaled a further 50-point reduction this year.

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"We're doing great. We're in a very nice place right now. We'll go slow in our monetary easing," Diokno told ANC's Early Edition. The economy could grow by 6.5 to 7 percent this year and unemployment is "low," he said.

"Our projection is that maybe, there's still some area for cutting both the reserve requirement and the interest rate. Maybe not as aggressive as last year," he said.

The Feb. 6 policy rate decision will be "data-dependent," Diokno said. Gross domestic product growth accelerated to 6.4 percent in the fourth quarter of 2019, however full year growth came in at 5.9 percent, missing the low end of the government's target.

The BSP could slash 25 points off the benchmark rate in the first quarter, Citi said in a research note. "Benign" inflation gives monetary authorities room to support growth, it said.

An expected uptick in inflation this year is "nothing to be scared of" since it will likely stay within the 2 to 4 percent range, he said. Inflation will be "in the neighborhood of 3 percent" in 2020, Diokno said.

"We're very confident that the inflation rate that we've seen in 2018 will not occur this year and next year," he said.

Inflation peaked at near 10-year highs in 2018 due to high rice prices, prompting the 175-point rate hike.