Philippine central bank all set to cut key rate below 3%

Bloomberg

The Philippine central bank is ready to cut its policy rate to below 3% to support an economy reeling from a “once in a lifetime crisis,” according to Governor Benjamin Diokno.
“It is now clear that reverting to where we were in 2018 — policy rate at 3.0% — is no longer an appropriate policy goal,” the governor said in a mobile phone message reply on Sunday. “A deeper cut is warranted in response to the expected sharp economic slowdown.” The key rate at 3% was the record low for the Philippines.
Another 2 percentage point cut in banks’ reserve requirement ratio “is forthcoming” based on available data and the needs of the economy, Diokno said.
Bangko Sentral ng Pilipinas has cut its key rate by 75 basis points this year to 3.25% and slashed lenders’ reserve ratio by 200 basis points to help the government shield one of the region’s fastest-growing economy. Diokno and his team has thrown the government a $6 billion lifeline by buying its debt, and also opened a facility to purchase government securities in the secondary market.
Out of the 1.17 trillion pesos ($23 billion) that the government had lined up to fight the coronavirus, 830 billion pesos came from BSP’s actions, Finance Secretary Carlos Dominguez said last week. Gross domestic product could shrink by as much as 1%, its first contraction in more than two decades.
Inflation is likely to be closer to the lower end of a 2%-4% target this year, Diokno said. The central bank will continue to be data dependent and is aware that monetary policy works with a lag, he said. The next scheduled rate meeting will be on May 21, although the governor said on April 6 he’s not ruling out an off-cycle move.
Bangko Sentral boosted the key rate by 175 basis points to 4.75% between May and December 2018 to cool the fastest inflation in nine years. Before the coronavirus outbreak, Diokno signalled a half-point rate cut for 2020, and had said he won’t rush to cut banks’ reserve ratio.
“These new realities call for bolder but appropriate moves on the part of the BSP. The challenge is to cushion the impact of the economic slowdown on people, firms and the financial system,” Diokno said. “The monetary authorities job, in coordination with fiscal authorities, is to manage a ‘soft’ landing and ensure that economic takeoff begin quickly once the pandemic fades.”