Financial markets,
volatility while it rebuilds its foreign reserves,” he said.
The BPI economist said that the BSP will “likely pick low hanging fruits” before cutting policy rates. Among these include cutting the reserve requirement ratio (RRR) by two percentage points or more this year and non-sterilized purchases of foreign currencies in the spot foreign exchange market.
“Even without a premature cut in the BSP’s policy rate, we expect benchmark interest rates to drop to more accommodative levels in 2019 given the RRR cut and GIR (gross international reserves) purchases of the BSP. This should allow both the public and private sectors to carry on with their much needed expansion projects to help the Philippines catch up with its richer ASEAN neighbors,” Mr. Neri said, referring to the Association of Southeast Asian Nations.
“The biggest risk to the rates outlook could come from a significant breach of the government’s fiscal deficit target of 3% and the resulting surge in its borrowing activity,” he added.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. echoed this sentiment: “With the latest US Fed’s very dovish policy stance, BSP is expected to hold policy rates for the first six months this year before considering to cut RRP (reverse repurchase) rates. It seems the priority of BSP is addressing market liquidity while securing price stability after the challenges of 2018.”
The central bank has slashed the RRR in two moves last year and now require universal and commercial banks to hold on to just 18% of their deposits from 20% previously, leaving them with more or less an additional P200 billion which they can lend to borrowers.
This is in line with the late BSP Governor Nestor A. Espenilla, Jr.’s long-term goal to bring back the reserve standard to single digits by 2023 — around the time his six-year term as central bank chief ends.
The BSP has long clarified that any RRR cut signifies an “operational” change rather than a shift in their policy stance, although market players view it as an easing. Nevertheless, the central bank has put further reserve cuts in the back burner following the surge in consumer prices, which led to the five rate hikes last year.
GDP GROWTH STILL ROBUST,
BUT EXPECTATIONS MIXED
The Philippine economy expanded 6.1% in the fourth quarter of 2018 — a pace slower than expectations. For 2018, economic growth averaged 6.2%, missing