Bank reserves cut to follow policy rates

MANILA, Philippines — Monetary authorities are expected to cut interest rates first before further lowering the level of deposits banks are required to keep with the Bangko Sentral ng Pilipinas (BSP).

BSP Governor Benjamin Diokno told reporters on the sidelines of the Philippines Investment Forum organized by Euromoney that the additional reduction to the reserve requirement ratio (RRR) has always been on the policy agenda.

However, the BSP is unlikely to do a simultaneous rate cut and lowering of the RRR during the rate-setting meeting of the BSP’s Monetary Board on Thursday.

“That’s unlikely,” Diokno replied when asked about the likelihood of an interest rate cut and RRR reduction on Sept. 26.

The BSP chief earlier hinted at the possibility of another interest rate cut or RRR reduction as early as this month due to easing inflation.

“It might come sooner than later. So I think it won’t reach November or December to be sure for both,” Diokno had said.

The BSP has so far slashed interest rates by 50 basis points due to easing inflation and slower-than-expected gross domestic product (GDP) growth.

ING Bank Manila economist Nicholas Mapa said “the BSP appears primed to unload another salvo of rate reductions to stave off a festering economic slowdown” as the threat of a global slowdown builds at a time where domestic growth momentum appears to be moderating.

Mapa said the BSP is looking to restore credibility and establish thrust with the market through forward guidance.

According to Mapa, the BSP may slash interest rates by another 25 basis points and announce the RRR reduction schedule for the fourth quarter on Thursday.

“Thus even as BSP embarks on a heroic gambit to boost flagging growth via easing, market reaction has been positive and the peso has been stable. Will see another 25 bps rate cut on Thursday to bolster growth and BSP will announce the fourth quarter RRR reduction schedule, with a pair of 50 bps reductions at the end of October and November,” Mapa said.