Philippine Central Bank Governor Signals Rate Reduction

Benjamin Diokno, Governor of the Philippine Central Bank, said he expects the next interest rate cut, which is likely to happen in the middle of the year.

The bank will depend on the data, but it will have the opportunity to mitigate after lowering interest rates for the fourth time in a year. Diokno said that in connection with the next reduction in rates, there is still a lot of money space.

Bangko Sentral NG Pilipinas lowered its base rate by 25 basis points on Thursday to 3.75%. It was the last weakened central bank in Southeast Asia as the outbreak of coronavirus in China heightens risks for global economic growth. The move came the day after the Bank of Thailand cut interest rates by 25 basis points. The Central Bank of Singapore indicated that there is space for further currency depreciation.

Diokno indicated that last year he foresaw 50 basis points of rate cuts in 2020. After the central bank raised rates by 175 basis points in 2018.

As of 9:58 a.m., the peso remained unchanged in Manila and amounted to 50.81 per dollar. The Philippine basic stock index declined by 0.9%.

The Impact of the Epidemic on Economic Growth

Diokno said the virus could reduce growth by 0.2 percentage points in the first quarter of the year and by 0.4 percentage points in the second quarter. However, a combination of fiscal and monetary support can help the economy achieve its planned growth of 6.5% -7.5% this year.

The manager noted that the central bank is in no hurry with a further reduction in the required reserve ratio of banks. Previous cuts only partially affected bank lending. According to Diokno, the central bank is allowed by law to place its own financial instruments.

“This is an additional policy tool if necessary,” he said, “but now there is no desire to deal with it”

The virus can have a cooling effect on inflation by lowering oil prices. Consumer prices rose 2.9% in January, and the central bank expects them to remain in the range of 2–4% over the next few years.