Bangko Sentral keeps rates steady in first meeting under Diokno


Posted at Mar 21 2019 04:08 PM | Updated as of Mar 21 2019 05:09 PM

Bangko Sentral ng Pilipinas Governor Benjamin Diokno speaks during an interview with ANC's The Boss on March 12, 2019. George Calvelo, ABS-CBN News

MANILA -- (UPDATE) The Bangko Sentral ng Pilipinas on Thursday kept interest rates unchanged during its policy-making board's first meeting under Governor Benjamin Diokno, meeting analysts' expectations.

The overnight borrowing rate used by banks to price their loans remained at 4.75 percent.

Diokno said their latest baseline inflation forecast showed inflation settling within the BSP's target of 2 to 4 percent for both 2019 and 2020, and inflation expectations were also stabilizing within the central bank's target range.

He added that growth prospects were firm amid a recovery in household consumption and the continued implementation of the government's infrastructure program.

"However, there are risks to growth in 2019 if the current budget impasse in Congress is not resolved soon," Diokno said.

Analysts expect the BSP to start easing policy later this year as inflation returned to the central bank's 2 to 4 percent target range.

Diokno, who assumed office in early March, said he favored "steady, strong" growth, which was seen by the markets as a signal that he could ease policy faster than expected.

In an interview with ANC's The Boss on March 12, Diokno said he was convinced of the need to loosen monetary policy.

"If there's a need" to ease policy, he said it could be a reduction in the reserve requirement ratio for banks of about "1 percentage point every quarter for the next 4 quarters."

The reserve requirement for banks was cut twice last year to 18 percent, in line with a medium-term plan to bring the ratio to single-digit levels and help bolster a slowing economy.

While inflation eased to a one-year low of 3.8 percent in February, the year-to-date average of 4.1 percent remained outside the central bank's 2-4 percent target.

Michael Ricafort, an economist at Rizal Commercial Banking Corp, told Reuters the central bank would likely wait for year-to-date inflation to drop below 4 percent "before any cut on local policy rates could take place."

Six of the eight economists who gave year-end policy rate projections said they expected the central bank to slash the main rate this year, with forecasts ranging between 25 and 75 basis points.

Eight economists who gave RRR forecasts said they expected the central bank to deliver cuts between 200 and 400 basis points in the amount of cash that banks must hold as reserves this year.

The US Federal Reserve on Wednesday (Thursday in Manila) abandoned projections for any interest rate hikes this year, bringing its three-year drive to tighten monetary policy to an abrupt end.

-- with a report from Reuters