Remolona signals 2 more rate cuts

The Bangko Sentral ng Pilipinas (BSP) could slash rates by 50 basis points (bps) more this year, its governor said on Wednesday.

BSP Governor Eli M. Remolona, Jr. told reporters the Monetary Board could implement two more rate cuts at its next two meetings scheduled for Oct. 17 and Dec. 19.

“We have a policy meeting in October. And we also have one in December. So, 25 bps, 25 bps. That’s possible, in principle,” he said on the sidelines of a forum at the Asian Development Bank.

The central bank began its easing cycle in August by cutting the target reverse repurchase (RRP) rate by 25 bps to 6.25% from the over 17-year high of 6.5%. This was the first time the BSP reduced rates in nearly four years.

Asked if the Monetary Board could deliver a 50-bp rate cut in one meeting, Mr. Remolona said that there would be a risk of a “hard landing” in that scenario. Central banks normally deliver 25-bp rate cuts, he added.

“In normal times, that’s what central banks do — 25 bps, 25 bps, 25 bps.”

If the Monetary Board delivers rate cuts worth 50 bps later this year, it would bring the benchmark rate to 5.75% by end-2024.

Mr. Remolona said the central bank would continue monitoring the latest macroeconomic data and indicators.

“We have to look at the numbers. It’s not the last number that decides. The last number that we get, the September number that will be released next week, that feeds into our projections.”

“So, what we care about is the projection for one year from now, because the effect of monetary policy is slow. That’s the relevant number,” he added.

Mr. Remolona also said September inflation could 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 Oct. 4.

The BSP expects full-year inflation to settle at 3.4%.

CAPITAL MARKETS

Meanwhile, the BSP chief said they are working on initiatives to further deepen capital markets.

“When it comes to price stability, deeper capital markets strengthen our transmission mechanism,” Mr. Remolona said.

These also support the central bank’s mandate on financial stability, he added.

“When the banking system gets into trouble, we want investments to have access to some other 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 on enhancing short-term benchmarks to further develop capital markets.

They are scheduled to announce on Sept. 30 the latest enhancements to short-term benchmarks via peso (PHP) interest rate swaps and repurchase agreements for government securities.

Mr. Remolona earlier said he planned to revive the swap market. A swap is a derivative contract where one party exchanges the values or cash flows of one asset for another.

Swaps are traded over the counter, versus options and futures that are traded on a public exchange.

Interest rate, equity, credit default, and currency swaps are the most common types of swaps. – Luisa Maria Jacinta C. Jocson, Reporter