By Luisa Maria Jacinta C. Jocson, A reporter
BANGKO SENTRAL in the Philippinesnas (BSP) may cut rates by 50 basis points (bps) more this year, its governor said on Wednesday.
BSP Governor Eli M. Remolona, Jr. told reporters that the Monetary Board may implement two more rate cuts in its next two meetings scheduled for Oct. 17 and Dec. 19.
“We have a policy meeting in October. And we have it again in December. So, 25 bps, 25 bps. That is possible, according to the law,” he said on the sidelines of a forum at the Asian Development Bank.
The central bank kicked off its easing cycle in August by cutting the target repo rate (RRP) by 25 bps to 6.25% from a 17-year high of 6.5%. This was fthe first time the BSP has cut rates in almost four years.
Asked if the Monetary Board could deliver a 50-bp rate cut in one meeting, Mr. Remolona said that there will be a risk of “falling hard” in that situation. Central banks typically deliver 25-bp rate cuts, he added.
“In normal times, that’s what the big banks do – 25 bps, 25 bps, 25 bps.”
If the Monetary Board delivers a rate cut worth 50 bps later this year, it will bring the benchmark rate to 5.75% by the end of 2024.
Mr. Remolona said the central bank will continue to monitor the latest economic data and indicators.
“We have to look at the numbers. It is not the final number that decides. The last number we get, the September number that will come out next week, will go into our estimates.”
“Therefore, what we care about is the projection one year from now, because the effect of monetary policy is slow. That is the right number,” he added.
Mr. Remolona also said that September inflation may be lower than the August print.
Headline inflation eased to 3.3% in August from 4.4% in July. September inflation data will be released on October 4.
BSP is waiting for a whole yearfwill remain at 3.4%.
BIG MARKETS
Meanwhile, the BSP official said that they are busy with plans to continue deepening the financial markets.
“When it comes to price stability, deep financial markets strengthen our transmission mechanism,” said Mr. Remolona.
These also support the central bank’s mandate for financial stability, he added.
“When the banking system goes into trouble, we want investors to reach to another source of funds and that would be the corporate bond market, the stock market.”
The BSP and Bankers Association of the Philippines (BAP) are working to develop short-term benchmarks to improve financial markets.
They are scheduled to announce on September 30 the latest developments in benchmark short-term peso (PHP) interest rate swaps and government securities repurchase agreements.
Mr. Remolona previously said he plans to revive the exchange market. A swap is a derivative contract in which one party swaps the price or cash flow of one asset for another.
Swaps are traded over the counter, compared to options and futures that are traded on public exchanges.
Interest rates, equity, credit default and currency exchange are there the most common types of replacement.
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