By Luisa Maria Jacinta C. Jocson, Reporter
THE Bangko Sentral ng Pilipinas (BSP) might recommence its easing cycle as soon as its next gathering on April 10, a senior official stated.
BSP Governor Eli M. Remolona, Jr. indicated that a reduction in rates remains “an option” during the Monetary Board’s assembly next month, hinting at “a few more” reductions for the remainder of the year.
“I want to emphasize that we still see ourselves on the easing path. We anticipate a few more reductions this year. However, the exact amount has yet to be decided,” he shared at a conference.
Mr. Remolona also verified that the Monetary Board’s forthcoming meeting will be rescheduled to April 10 from its original date of April 3.
“When we believe we’re moving in the right direction, more or less, we proceed with gradual changes, which means 25 basis points (bps) at a time,” he mentioned.
The central bank surprisingly maintained steady rates during its February policy assessment, opting to hold the benchmark at 5.75%.
This decision followed three consecutive 25-bp reductions at each of its meetings held in August, October, and December.
“If the situation deteriorates significantly beyond our expectations — what we refer to as a hard landing — it could lead to a cut of up to 50 bps or even more. But as long as we are on track, we will proceed with 25 bps at a time,” Mr. Remolona clarified.
Nonetheless, he added that a hard landing or recession scenario is “extremely improbable.”
The Philippine economy expanded by a lower-than-anticipated 5.2% in the final quarter, resulting in a projected growth of 5.6% for 2024. Full-year growth was significantly below the target range of 6-6.5%.
For this year, the government aims for a growth target of 6-8%.
Mr. Remolona remarked that the central bank evaluates various scenarios while making policy decisions.
“There’s the baseline scenario, which indicates how many times we might cut rates this year. Then we have a hawkish scenario, suggesting fewer rate cuts. Conversely, the dovish scenario implies more cuts than the baseline,” he elaborated.
“We assess these three scenarios alongside inflation trends and growth patterns. It’s a balancing act between inflation control and economic growth, hence we must weigh various factors.”
The BSP chief added that they are still refining existing models to accommodate risks.
During their February meeting, Mr. Remolona remarked that “global trade uncertainties” were the main reason for maintaining the current policy stance.
“There are still numerous figures to analyze. Naturally, we’re recalibrating our models to address uncertainty,” he asserted.
Headline inflation dropped significantly to 2.1% in February, down from 2.9% in January and 3.4% a year earlier.
The February rate also fell short of the 2.2%-3% forecast set by the central bank.
“We did fall short of the inflation figure on the lower end, beneath the minimum of our range. If we are to miss it, this is the preferable way to do so, right? Thus, we are pleased with that deviation,” Mr. Remolona commented.
“Afterward, we’ll evaluate all the other data, and then we will determine on April 10 whether to continue easing or not.”
ADDITIONAL RRR CUTS?
Mr. Remolona also mentioned the potential for another reduction in the reserve requirement ratio (RRR), which could occur within the year.
When asked if the BSP could decrease reserve requirements again before the year concludes, he stated it was “possible.”
“To me, 5% still seems high. However, I’m just one vote among seven on the Monetary Board. It cannot happen abruptly as we need to manage the liquidity being released,” he added.
The RRR for universal and commercial banks, as well as nonbank financial institutions with quasi-banking functions, will be cut by 200 bps to 5% from 7% later this month.
Digital banks’ RRR will also be reduced by 150 bps to 2.5%, while the rate for thrift banks will be decreased by 100 bps to 0%.
Rural and cooperative banks have maintained a zero RRR since October, which was the last time the BSP adjusted reserve requirements.
Mr. Remolona indicated that large banks’ RRR could potentially be reduced to zero eventually. “It could reach zero. In the United States, the RRR is zero.”
The BSP chief mentioned there is a “subtle distinction” between the policy rate and reserve requirement. Reducing either one helps to stimulate economic activity, he stated.
“However, with the policy rate, there’s a kind of cycle, and one doesn’t want to lower it just to raise it afterward. It’s preferable to proceed with gradual adjustments.”
“In contrast to the reserve requirement, one can simply cease. You can reduce it, and that’s it; there’s no cycle to consider. Adjustments can disrupt the markets, especially concerning the policy rate.”
FOCUS ON PESO
In the meantime, Mr. Remolona stated they are closely watching the movements of the peso.
“We consistently monitor the exchange rate. However, not for the same reasons as others may be concerned. Our concern stems from the potential inflationary effects if it fluctuates excessively, especially if it weakens,” he remarked.
On Tuesday, the peso closed at P57.225 per dollar, strengthening by 18.5 centavos from its P57.41 close on Monday.
The peso faced significant pressure late last year, dropping to a record-low P59-per-dollar level three times.
“We keep track of the exchange rate, but not because we prefer it to remain low or high. Our monitoring is due to the potential inflation repercussions,” he added.
Mr. Remolona also clarified how the central bank manages its gold reserves.
“Gold as an asset is a very poor investment. The returns are negative due to custody fees. Our gold is held at the Bank of England, and we incur costs for their storage services. That’s where the market is,” he stated in a mix of English and Filipino.
“However, it is highly volatile. Therefore, in isolation, it represents a very poor investment choice. It’s risky, and the average return is negative.”
Recent BSP figures indicated that the value of the central bank’s gold reserves increased by 2.5% to $12.5 billion at the end of February, up from $11.75 billion the previous month. It also surged by 16.6% compared to $10.34 billion during the same period in 2024.
“Yet, if held as part of a larger portfolio, and our portfolio mainly consists of dollar assets, it serves as a good hedge… particularly in times of geopolitical (uncertainties),” he remarked.
Mr. Remolona observed that the central bank had sold gold reserves when the prices of the precious metal increased, resulting in the gold in the BSP’s reserves exceeding the “ideal ratio of between 8% and 10%.”
Most of the BSP’s gold reserves are stored at the Bank of England, with a smaller quantity retained at the New York Federal Reserve.
