BSP looking to cut rates by at least 50 basis points

THE CENTRAL BANK will cut benchmark rates by at least 50 basis points (bps) in 2020 as it continues to dial back the 175 bps worth of hikes done in 2018 fueled by a high inflation environment, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

Mr. Diokno added that the BSP is not in a hurry to cut banks’ reserve requirement ratio (RRR) as he still has time in his term to fulfill his promise to bring the level down to a single digit.

“On the interest rates, at least 50 basis points. That’s the forward guidance,” he told reporters at a media gathering on Tuesday evening.

So far, the BSP has slashed key policy rates by a total of 75 bps this year, bringing key policy rates to 3.5% for the overnight deposit facility, four percent for overnight reverse repurchase and 4.5% for overnight lending.

“Now whether that will come first quarter, second quarter, tignan natin (let’s see). That’s better than being deliberately vague,” he said, pertaining to the timing of the next set of rate cuts.

Mr. Diokno said their forward guidance is meant to help investors and businessmen.

“We’re transparent. We want the investors and businessmen to be able to pick it so we provide forward guidance,” Mr. Diokno said, noting that previous central bankers as well as central banks abroad have a tendency to be “deliberately vague” with their statements.

Meanwhile, Mr. Diokno said they are in no hurry to cut banks’ RRR to the single digit level, noting that his term will only end by mid-2023.

“So nasan na tayo ngayon? Nasa 14. (Where are we now in terms of RRR? At 14% [for big banks]. That’s 500 basis points over 14 quarters [still needed to be slashed to reach a single digit.] So I’m not in a hurry to cut reserve requirements,” he said.

Mr. Diokno added that the central bank wants to examine how lenders are utilizing the liquidity boost they have from reduced RRR which is now at 14% for big banks, five percent for thrift banks, and three percent for rural banks.

He said they are looking into whether the banks are lending the additional liquidity or are only returning it to the BSP’s facility, which he said will cost the central bank.

“Kasi kung ibabalik lang nila sa amin, that’s very costly kasi binabayaran namin sila. (Because if they only return the money to us, that’s very costly because we pay them). But we want them to lend to small-scale industries,” he said.

Latest data from the BSP showed money supply grew 8.5% year on year to P12.1 trillion in October, a faster clip compared to the 7.7% growth logged in September.

Meanwhile, outstanding loans of universal and commercial banks inched up by 9.3% in October, slower compared to the 10.5% growth in September. — LWTN