Philippines may hold key rate in first half, says governor

MANILA: Philippine interest rates will likely remain on hold at least through the first half of 2021 as the economy recovers, according to central bank governor Benjamin Diokno.(pic)

MANILA: Philippine interest rates will likely remain on hold at least through the first half of 2021 as the economy recovers, according to central bank governor Benjamin Diokno.(pic)

“There will be a long pause as far as cutting is concerned. We’re comfortable where we are right now, ” Diokno said in a virtual roundtable with Bloomberg News. Asked if a rate cut through the first half of the year is no longer in play, Diokno replied,

“I think it’s fair to say yes.”

“The current monetary stance will persist for the next two quarters or even longer, ” he said.

Bangko Sentral ng Pilipinas has taken the lead in bolstering the country’s economy against the pandemic, with the government avoiding outsized spending packages to preserve its sovereign credit rating.

The central bank cut its benchmark interest rate by two percentage points last year to a record low of 2%, reduced banks’ reserve requirement ratios by 200 basis points and eased lending rules.

The governor said there may be “some play” to further cut the reserve requirement ratio from 12%, and the Monetary Board gave him authorisation to lower the RRR by an additional 200 basis points last year. But it’s unlikely to happen soon.

“Right now there’s ample liquidity in the market, so there might be no need for it, ” he said.

The government estimates gross domestic product shrank by as much as 9.5% last year. Analysts expect Philippines GDP will start growing again only in the second quarter, which would make it one of the slowest countries in Asia to recover from the pandemic.Diokno said the economy should show some positive growth early in the year and then see “significant” growth in the second quarter, compared to the same period in 2020 when the pandemic was at its peak.

If a national vaccination drive gets underway by the second quarter, expectations of 6.5%-7.5% GDP growth this year could prove too conservative, Diokno said.

The central bank approved a 540-billion peso (US$11.2bil) no-interest loan to the government to help finance spending against the pandemic, Diokno said, pledging to continue supporting the economy and markets.

“Is there a fear that this will be a permanent feature?” Diokno said of the central bank lending to the government.

“I don’t think so.”

Diokno said he’s comfortable with the peso’s current level, which he said will continue to reflect market conditions.

The currency was up 0.04% against the dollar Wednesday, while Philippine stocks fell as much as 2.9%.

The central bank is considering changing its policy on gold holdings – currently fixed at 10% of the bank’s reserves – moving instead to a range of 6%-10% of reserves. That could free the bank to buy more of the precious metal from Philippine miners and then sell it for a profit, Diokno said.

“It’s an opportunistic policy. I don’t think the price of gold will be this high for long, ” he said.

The central bank is scheduled to review its key rate again on Feb 11. Inflation quickened further last month, remaining above the mid-point of the central bank’s 2%-4% target, which analysts say could mean the bank is nearing the end of its easing cycle.

“We see this as a marathon, not a sprint. So we’ll be very conservative in unwinding the measures we’ve put in place, ” Diokno said. “The low-interest rate policy will be there for a long time.”— Bloomberg