BSP policy meeting to proceed; rate cut expected

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is holding its second rate-setting meeting for the year as scheduled next week despite Malacañang’s decision to place the National Capital Region (NCR) under community quarantine due to the rapid spread of the coronavirus disease 2019 (COVID-19).

In a text message, BSP Governor Benjamin Diokno said the central bank’s Monetary Board would convene as scheduled on March 19 to assess the country’s policy settings in light of fresh developments.

“Yes, the policy meeting on March 19 will push through,” Diokno said. The BSP chief and Monetary Board chairman decided to go on self-quarantine last Thursday after he was exposed to a person who tested positive for COVID-19.

Diokno said he would undergo testing for COVID-19 and would decide on Monday whether or not he would attend the MB meeting by Monday.

The Monetary Board convene every after six weeks, or a total of eight meetings in a year, to determine the country’s policy settings based on fresh developments. It would be recalled the central bank shifted to an inflation targeting framework in 2002 as it is mandated by Republic Act 7653 or the New Central Bank Act to promote price stability conducive to a balances and sustainable growth of the economy.

Inflation targeting is focused mainly on achieving a low and stable inflation, supportive of the economy’s growth objective. This approach entails the announcement of an explicit inflation target that the BSP promises to achieve over a given time period.

Diokno announced earlier the body would not hold an off-cycle meeting ahead of schedule despite the surprise decision of the US Federal Reserve to slash interest rates by 50 basis points during an emergency meeting last March 3 due to the impact of the COVID-19 pandemic.

The BSP slashed interest rates by 25 basis points last Feb. 6 as a preemptive move to boost market confidence and prevent potential spillovers from the impact of external headwinds such as the impact of COVID-19.

In all, the BSP has reduced interest rates by 100 basis points since May last year, partially unwinding the tightening cycle that saw interest rates rise by 175 basis points in 2018.

It also lowered the level of deposits banks are required to keep with the central bank, thereby releasing about P450 billion to the financial system to boost economic activity.

Diokno said he is not ruling out additional interest rate cuts if the impact of the virus outbreak turns out to be worse than expected.

Diokno signaled a 50-basis point rate cut for 2020, of which a 25-basis point cut was implemented last Feb. 6.

Lower interest rates is seen enticing individuals to borrow more, thereby boosting consumption and for corporates to borrow more to boost economic activity.

Philippine National Bank economist Jun Trinidad said the BSP is expected to deliver another 25-basis point rate cut next Thursday as the Lucio Tan-led bank now sees another 50 basis point rate cut instead of only 25 basis points this year.

“On this benign trajectory amid downside risk to growth outlook, we revise our BSP policy rate outlook to 3.25 percent instead of 3.75 basis points by end 2020,” Trinidad said.

Trinidad added the BSP is likely to front-load monetary accommodation in the first half with a reduction of 25 basis points on March 19 and another 25 basis points on May 21 after the US Federal Reserve delivered a surprise 50 basis point cut during an emergency meeting last March 3.