Diokno: policy rate cut possible in Q1

During the Tuesday Club forum in Mandaluyong City, Diokno said Philippine monetary officials do not want domestic real interest rates to be higher than the rest of the world. (File Photo: Department of Budget and Management/Facebook)

MANILA — A cut in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates may be expected in the first quarter of 2020, BSP Governor Benjamin Diokno said Tuesday.

During the Tuesday Club forum in Mandaluyong City, Diokno said Philippine monetary officials do not want domestic real interest rates to be higher than the rest of the world.

“Papasok diyan yung tinatawag na hot money (That will encourage hot money). We don’t like hot money,” he said.

Foreign portfolio investments or hot money are funds invested in a country to take advantage of interest rate differentials. These are volatile funds since investors immediately withdraw their capital when negative developments happen.

To date, the BSP’s overnight reverse repurchase (RRP) rate is 4 percent, the overnight repurchase (RP) rate is 4.5 percent, and the overnight deposit rate is 3.5 percent.

These have been reduced by a total of 75 basis points in 2019 after a 175 basis points increase in 2018.

“I promise, first quarter of this year maybe 25 basis points and we’ll continue to look at other numbers,” Diokno added.

Earlier, the central bank chief said deceleration of domestic inflation rate and continued strengthening of the domestic growth give monetary officials a leeway to cut key policy rates further.

Last year, inflation averaged at 2.5 percent, within the government’s 2-4 percent target band.

Last December alone, rate of price increases posted another uptick to 2.5 percent from month-ago’2 1.3 percent.

This is the second consecutive month that inflation registered an increase after posting its lowest level last year at 0.8 percent.

Diokno said the upticks are within their expectations as they continue to see inflation normalization in the coming months.