Philippine central bank keeps rates steady under new governor

22, Mar. 2019

MANILA, NNA – The Philippine central bank on Thursday kept its benchmark rates unchanged for the fifth straight time as inflation eased within government’s target.

The bank also maintained its reserve requirement for commercial banks despite expectations of a cut following the appointment of its dovish new governor, Benjamin Diokno.

Key points:

―― In a widely expected move, Bangko Sentral ng Pilipinas (BSP) kept the interest rate on its overnight reverse repurchase facility at 4.75 percent as inflation settled within the government’s target.

―― “Inflation pressures have eased further since the previous monetary policy meeting, reflecting mainly the decline in food prices amid improved supply conditions,” BSP Deputy Governor Diwa Guinigundo told a news conference.

―― The central bank also maintained the reserve ratio requirement –

the cash ratio banks are required to hold in reserve – at 18 percent.

―― Market participants expect the BSP to further trim the RRR this year. Diokno, previously the Philippines’ budget chief, who was appointed on March 4 by President Rodrigo Duterte, is believed by markets to be open to cutting the requirement, which is the highest in Southeast Asia.

―― Last month, inflation clocked in at 3.8 percent from a year earlier, a one-year low, and within the government’s target band of 3 to 4 percent. But core inflation excluding food and energy prices was 3.9 percent on year, a much faster pace than the 3 percent recorded a year earlier.


―― Analysts expects the central bank to cut rates by the end of the April-June quarter once inflation becomes firmly settled within the government’s target.

―― Nicholas Mapa, senior economist at ING Bank Manila told NNA: “They may also cite possible slowdown to GDP momentum owing to the 2018 rate-hike salvo, the ill effects of the budget [passage] delay and the onset of a moderate El Niño as reasons for considering a rate cut at the next meeting” on May 9.

―― Mapa said the central bank may announce a cut in RRR at an off cycle meeting this month given the relatively tight liquidity conditions, and “grinding” single-digit growth in the country’s money supply (M3) for the past five months. “The timing will be determined on whether Governor Diokno reverts to viewing adjustments to the RRR as a policy move or a procedural adjustment,” he said.

―― Diokno, who faced controversy as the Philippines’ budget secretary, is seen to take a dovish approach to monetary policy, or more open to cutting rates, which some worry may negatively impact the country’s currency.

“The peso pulled back mainly on the view that Diokno is now dovish…which if carried out would foment peso weakness. Thus, we maintain our initial call for peso weakness throughout the year, on both BSP outlook and the fundamental weakness in our external position,” Mapa noted. ING expects the peso to settle at 54.02 pesos to the dollar by yearend, compared to 52.80 now.