BSP: Monetary settings remain appropriate, premature to talk about RR cuts

While the February inflation print fell in line with the government target, the Bangko Sentral ng Pilipinas (BSP) on Tuesday said it is still premature to talk about possible cuts in the reserve requirement, and current monetary settings remain appropriate.

"This is consistent with our forecasts that for 2019 and 2020, inflation is expected to average at around 3 percent, highlighting the non-persistence of supply-side pressures we managed in 2018 with the tightening moves of the BSP from May through November," BSP Deputy Governor Diwa Guinigundo said in a text message.

The Philippine Statistics Authority (PSA) earlier in the day announced the February inflation print at 3.8 percent, the slowest since the 4.3 percent in March 2018.

With this, Guinigundo said the monetary settings—overnight borrowing rate at 4.75 percent, the overnight lending rate at 5.25 percent, and the overnight deposit rate at 4.25 percent—remain appropriate.

"We continue to consider our current monetary settings as appropriate given the emerging risks both here and abroad," he said.

The Monetary Board is scheduled to meet on March 21 to discuss whether or not current conditions warrant a change in key policy settings.

"[T]he Monetary Board will be meeting this month precisely to review the stance of monetary policy given the expected new data that would be available from now until the next meeting against the backdrop of a softening global economy," said Guinigundo.

"It may be premature to talk about a possible reduction in either policy rate or the RRR at this time considering that the year-to-date inflation remains above the target of 2-4 percent," he explained.

The late BSP Governor Nestor Espenilla, Jr., who died last month after battling tongue cancer for more than a year, said he wanted to cut the reserve requirement ratio to the single-digit level during his term, which was supposed to end in 2023.

"More important, our forecasts for the next two years are anchored on the current policy rate of 4.75 percent. But these policy issues will remain on the table. Timing is the critical issue," said Guinigundo. — BM, GMA News