The Governor of the Bangko Sentral ng Pilipinas (BSP) [link], Eli Remolona, said that an interest rate cut in April was “still on the table” as the BSP still considers itself to be “still on the easing cycle”. Mr. Remolona added, “We are expecting to cut a few more times this year. But how much, we haven’t determined.” The BSP’s Governor said that there’s a “subtle difference between the policy rate and the reserve requirement; when you reduce either one, it stimulates the economy, so in that sense, they’re roughly the same.” Mr. Remolona implied that he felt the RRR level for big banks at 5% was still too high, but said that they can’t be too “sudden” due to the need to “control the liquidity that’s coming out.”
MB bottom-line: All I know is that reducing the RRR is a massive gift to banks in a way that lowering the policy rate is not. From that perspective, an RRR reduction is not the same as a policy rate reduction, and Mr. Remolona’s statements make me nervous that he’s trying to build a case to get the public to accept RRR cuts in place of rate cuts. For the government who are focused on making macro metrics shift to improve a scorecard, or for the owners of banks that would like to add additional billions to their record profits, RRR cuts are like this “one weird trick” that can juice (bank) profits and the economy at the same time. But for the average Filipino individual or business, rate cuts are better. I didn’t get a chance to watch Mr. Remolona speak, so perhaps when spoken his words were not as ominous as the written accounts, but I don’t find this very promising.
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