THE Bangko Sentral ng Pilipinas (BSP) may slash its reserve requirement ratios (RRR) this month, as cash supply growth in recent months was stuck at single digit, according to a local economist.
ING Bank Manila senior economist Nicholas Mapa said newly installed BSP Governor Benjamin E. Diokno’s first move will likely be a cut on the RRR either this week or next week.
Mapa said the basis for his forecast is his view of “tight liquidity conditions” in the market as evidenced by the single-digit growth in M3 in recent months.
Data from the BSP showed domestic liquidity—broadly measured as M3—grew 7.6 percent in January this year, the slowest growth seen in the country since September 2012.
“Given the relatively tight liquidity conditions in the market, with M3 growth grinding to single-digit growth for five months and with the settlement of the recent RTB siphoning off roughly P200 billion from the market, the BSP may look to address the current tightening conditions with a RRR cut, announced either at the March 21 meeting or at an off cycle meeting on the 28th,” Mapa said.
“Another evidence of tightening liquidity conditions would be the price of money with short-term time deposit rates now as high as 4.794 percent,” he added. Mapa also said that the timing will depend on whether Diokno reverts to viewing adjustments to the RRR as a policy move or a procedural adjustment.
The BSP is expected to hold its next monetary policy setting meeting on Thursday, March 21. This will be the first meeting of Diokno as the new chairman of the Monetary Board. “BSP has vowed to remain data-dependent and will likely wait for more data to validate that inflation is firmly entrenched within target before acting. As such, we do not expect a policy cut at the March 21 meeting,” Mapa said.
“However, we do expect them to telegraph a possible rate reduction at the May meeting but on the condition that inflation continues to decelerate, and that inflation expectations become anchored further,” he added. The economist said the BSP may also cite possible slowdown to GDP momentum owing to the 2018 rate hike salvo, the ill effects of the budget delay and the onset of a moderate El Niño as reasons for considering a rate cut at the next meeting.
Image credits: Nonie Reyes