THE Bangko Sentral ng Pilipinas (BSP) may slash policy rates anew to inject more liquidity into the economy after the inflation decelerated last month.
RCBC Chief Economist Michael L. Ricafort and ING Bank Manila Economist Nicholas Antonio T. Mapa said they were expecting a 25-basis-point (bp) cut in the next monetary policy meeting on June 25.
Ricafort, in an e-mail to the BusinessMirror, said the slight easing in inflation could “still provide some leeway/flexibility to cut the local policy rates on the next monetary policy-setting meeting.”
He added, “There is still room to cut the 2.75-percent local policy rate, by at least -25 basis points, with inflation serving as the floor for key interest rates to prevent a situation of net negative interest rates.”
Last week, the Philippine Statistics Authority (PSA) reported that inflation slowed to 2.1 percent in May, down from 2.2 percent a month ago and 3.2 percent a year earlier. The inflation averaged at 2.5 percent as of end-May.
The RCBC economist explained that economic slowdown and risk of recession in the second quarter, coupled with extended community quarantine until May, in the Philippines and across the world could suppress inflationary pressures.
This, in turn, could prompt further trimming of monetary policy, he said, noting that another cut in banks’ reserve requirement ratio (RRR) was also possible.
“The local economy would still need all the support that it needs, both in terms of more fiscal stimulus measures and additional monetary easing measures, especially to provide immediate financial aid/assistance/lifeline to the most vulnerable sectors and prevent long-term adverse effects on the economy, such as job losses and business closures,” Ricafort added.
Apart from lower inflation, Mapa said the policy rate cut could be triggered by the need to provide additional stimulus to an economy nearing a recession, especially after the unemployment rate escalated dramatically amid the pandemic.
In April, at least 5 million Filipinos lost their jobs following the pandemic-induced lockdown in several parts of the country, according to PSA. This translates to a 17.7-percent growth in unemployment year-on-year.
He also noted that BSP has been telling the investors that it has “elbow room” to slash interest rates further amid a benign inflation environment.
“We believe that the Central Bank will carry out at most a 25-bp rate cut before pausing for the rest of the year to keep real policy rates positive,” he said.
UnionBank Chief Economist Ruben Carlo O. Asuncion, on the other hand, said the “current policy rates are already appropriate and the BSP is watching other metrics aside from inflation.”
“Liquidity is growing and I think that there is growing momentum that should be carefully considered in further cutting exercises,” he added.
The overnight reverse repurchase facility currently stands at 2.75 percent after BSP trimmed it by a total of 125 bp. This brought the overnight lending and deposit rates to 3.25 percent and 2.25 percent, respectively.
The Central Bank also brought down the RRR on reservable liabilities of universal and commercial banks by 200 bps to 12 percent.
BSP Governor Benjamin E. Diokno earlier said the Central Bank was willing to cut the reserve requirement further if needed.