Philippines rate cut a matter of timing as oil rises, says governor

Bloomberg

Philippines central bank Governor Benjamin Diokno said it is only a matter of timing as to when monetary policy is eased after last year’s series of interest-rate increases, even as authorities closely monitor oil prices.
A rate cut at the May 9 policy meeting will depend on key data and the outlook on El Nino weather, Diokno said in an interview on Boracay Island in central Philippines. If oil prices remain elevated, Bangko Sentral ng Pilipinas would keep the rate unchanged next month, he said.
“It’s just a matter of timing,” Diokno, 71, said on the sidelines of a convention of ACI Philippines, a group comprised mostly of currency traders. “We can cut policy rates and reduce RRR,” he said, referring to banks’ reserve requirement ratio. “We are data dependent, so we will look at the price of oil at that time.”
The governor said the peso, which is up 0.8 percent this year to 52.18 against the dollar, is reflecting its true value and could further strengthen with the entry of more Chinese investment.
Diokno said he isn’t ruling out a simultaneous reduction in the key rate and the reserve ratio down the road, pledging to bring the ratio of cash that banks must hold in reserve below 10 percent by the end of his term in 2023.
Inflation had cooled for five straight months after peaking to a nine-year high in 2018 and could ease to below 3 percent in the third quarter, he said. The governor expects gross domestic product growth of more than 6 percent in the first quarter even after a delay in the approval of the 2019 budget that held back infrastructure spending.
“In the near term, there’s a bit more urgency to cut the RRR as liquidity conditions are tight,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. A reduction in the reserve ratio can come as early as May 9 while the benchmark rate may be cut by 25 basis points each in the third and fourth quarter, Paracuelles said.
Since taking office in Mar-ch, Diokno has been signaling an openness to cut the key rate and the reserve rat-io, which at 18 percent is the highest in Southeast Asia.