Subdued inflation gives PH 'a lot of elbow room' for interest rate cut: Diokno

ABS-CBN News

Posted at May 25 2020 10:21 AM | Updated as of May 25 2020 04:52 PM

A maintenance worker wears a protective face shield disinfects a door handle at a mall in Manila as a precaution against COVID-19 on May 16, 2020. Czar Dancel, ABS-CBN News

MANILA - Subdued inflation is giving the Philippines "a lot of elbow room" to cut interest rate if needed to cushion the impact of the coronavirus pandemic, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Monday.

The consumer price index rose 2.2 percent in April from 2.5 percent in March, within the government's 2 to 4 percent target range.

"Given the subdued inflation, we might cut again...Right now we’re at 2.75 coming from 4 percent. We still have a lot of elbow room, I can tell you that," Diokno told ANC.

The BSP cut overnight borrowing rates by 125 basis points this year to 2.75 percent, with 100 basis points delivered during the lockdown.

A slight uptick in world oil price is not a concern, which will likely remain "moderate" for a long time, Diokno said. An increase in rice prices is temporary with planting season almost over and with the arrival of new import, he said.

With more "leeway," the BSP will likely deploy traditional measures first if needed such as additional repurchase agreement with the government, Diokno said.

Passing several fiscal stimulus bills will help the economy recover faster from the coronavirus pandemic, Diokno said. The BSP supports several bills such as stimulus package in the House of Representatives, reducing corporate income tax to 25 percent and the transfer of bad loans to asset management companies, he said.

Diokno earlier said the country needed more funds for the "new economy" that is focused on job creation.

"Fiscal stimulus, like monetary policy works with a lag, the sooner those measures are passed, the better...Those are the things that will actually strengthen our position," he said.

The biggest risk right now is a second wave of coronavirus cases that would result in a W-shaped recovery, Diokno said.