Philippine central bank seen keeping rates steady under new chief on Thursday: Reuters poll

March 15, 2019

By Karen Lema

MANILA (Reuters) – The Philippine central bank will likely wait until inflation is firmly within its target before it reverses some of last year’s policy tightening, a Reuters poll showed.

All 13 economists in the poll predicted the central bank would keep the interest rate on its overnight reverse repurchase policy steady at 4.75 percent at its meeting on Thursday, the first under new governor Benjamin Diokno.

There is a small chance the central bank would cut the amount of cash that banks must hold as reserves as early as Thursday, according to four economists in the poll, given the relatively tight liquidity conditions in the market.

The reserve requirement for banks was cut twice last year to 18 percent, in line with a medium-term plan to bring the ratio to single-digit levels and help bolster a slowing economy.

The appointment of Diokno, who is seen by the market as more open to growth measures, could spur a faster move in easing monetary policy this year to help an economy expected to grow less than previously thought, analysts have said.

Diokno, who on Tuesday raised the possibility of several cuts this year in the reserve requirement ratio (RRR), has repeatedly said the central bank’s policy decisions would be data-dependent and evidence based.

While inflation eased to a one-year low of 3.8 percent in February, the year-to-date average of 4.1 percent remained outside the central bank’s 2-4 percent target.

Michael Ricafort, economist at Rizal Commercial Banking Corp, said the central bank would likely wait for year-to-date inflation to drop below 4 percent “before any cut on local policy rates could take place”.

Six of the eight economists who gave year-end policy rate projections said they expected the central bank to slash the main rate this year, with forecasts ranging between 25 and 75 basis points.

Eight economists who gave RRR forecasts said they expected the central bank to deliver cuts between 200 and 400 basis points in the amount of cash that banks must hold as reserves this year.

(Additional reporting by Khushboo Mittal; writing by Karen Lema; editing by Darren Schuettler)

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