BSP mulls further cut in key rates

The Bangko Sentral ng Pilipinas (BSP) is expected to further bring down its key policy rates within the next four weeks.

BSP Governor Rafael Buenaventura said another cut in overnight borrowing and lending rates is still possible on expectations of another cut in the US Federal Reserve Board’s own key rates.

"In the near-term, we want to bring down rates to 11 to 12 percent, and this could be possible although it might not be this week," Buenaventura said.

A new rate cut, the second to take place this year, was announced last week by the BSP, bringing down key rates by another half percentage point. The effective rates for borrowing is 12.5 percent and 14.75 percent for lending.

The latest rate cuts are just one-and-a-half percentage points shy from the pre-juetengate levels after a 2.5-percentage point cut last December.

Buenaventura said how far down the BSP could go to reduce rates will depend largely on the final budget deficit figure to be announced this week.

Finance Secretary Jose T. Pardo hinted the budget deficit last year will not exceed P140 billion but will be more than P135 billion.

Asked on how the deficit will affect interest rates, Buenaventura said a higher-than-BSP mulls expected deficit "will reduce the flexibility" of the BSP to be able to trim its key rates.

"Unless government comes up with revenues to finance the deficit through foreign borrowing, then that would constrain us," although he added "there appears to be less demand for credit by the private sector, so there’s no crowding out," the BSP chief added.

Deficit management is significant because government is likely to corner borrowing from commercial banks, and subsequently, shutting off lending windows required by the private sector.