Diokno sees policy rate cut this month

New Clark City -- Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the possibility of another policy rate cut – at least 25 basis points (bps) --- could come sooner or even by September 26 which is the next Monetary Board policy meeting.

Prospects (of a cut) are bright ... it may come sooner than later. I think it won’t reach November or December, it will be soon,” said Diokno.

The BSP’s Monetary Board will only have three remaining policy meetings this year, its sixth on September 26, and the last two - seventh and eighth - will be on November 14 and December 12.

Diokno said it is possible to simultaneously decide on what actions to take on the benchmark rate and the reserve requirement ratio (RRR) reduction. He said that they are studying it now.

“Before we reached November we will make a decision. We don’t know yet (how much of a rate cut). At least 25 bps,” he said. Previously, he also said that RRR cuts will not necessarily be the same as of end-July, which was 200 bps, but could be lower at 150 bps.

An Advisory Meeting is scheduled on September 20 which will set the tone for the September 26 monetary policy decision.

“But you know, the inflation picture is getting brighter and brighter,” said Diokno, with inflation settling at 1.7 percent in August, the lowest since September 2016. The latest BSP forecast for 2019 is 2.6 percent average inflation.

Diokno said they are hoping the inflation will continue to be below two percent in the next two months, in September and October, because of base effects. Last year, inflation peaked at 6.7 percent in September and October because of high oil prices and exchange rate volatility.

The BSP chief added that with these factors, and with oil prices and electricity prices expected to continue to go down, as well as food prices that are “stable

and going down in the case of rice” the possibility of a “sooner than later” rate cut has a high chance.

The BSP said earlier this month that the lower prices of rice, electricity, and fuel products drove inflation down and that the latest inflation number is consistent with the BSP’s “prevailing assessment that inflation will continue to decelerate in the third quarter 2019 and pick up slightly in the fourth quarter.”

Inflation rate averaged at 3.8 percent in the first quarter 2019 before dropping to three percent in the second quarter. Diokno said earlier that he expects the average consumer prices to further drop to below two percent in the third quarter.

With declining inflation, the BSP cut rates by 50 bps so far. It also reduced RRR by 200 bps last July.