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Philippines Central Banker Sees Rate Cut When CPI Cools to 3%

Philippines Central Banker Sees Rate Cut When CPI Cools to 3%

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The Philippines central bank will consider easing monetary policy only when inflation nears the mid-point of its target, Deputy Governor Diwa Guinigundo said hours before data showing price gains cooled to a 15-month low.

“You don’t risk generating the pressures on inflation by either reducing the reserve requirement or bringing down the policy rate immediately,” Guinigundo said in an interview in Chiang Rai in Thailand on Thursday.

Philippines Central Banker Sees Rate Cut When CPI Cools to 3%

Inflation eased for a fifth consecutive month to 3.3 percent in March from a year earlier, cooling more than the 3.5 percent median estimate of economists. The average for the year is now at 3.8 percent, falling within the central bank’s 2 to 4 percent annual target. Moderating prices also stoked bets that lenders’ reserve requirement ratio could be cut.

“If the trend continues, then it’s only after that that one talks about monetary space or the flexibility to bring down the policy rates,” Guinigundo said in Thailand.

Philippines Central Banker Sees Rate Cut When CPI Cools to 3%

Bangko Sentral ng Pilipinas joins Bank Indonesia in adopting a cautious stance in dialing back aggressive rate hikes last year. In the Philippines, that could mean policy makers reversing the 175 basis points key rate increases between May and November 2018 or cutting the reserve ratio, which at 18 percent is the highest in Southeast Asia.

Click to read why Guinigundo is wary of premature easing

“Policy easing will eventually be delivered but could be delayed, because inflation has yet to be entrenched to the target,” said Emilio Neri Jr., an economist at Bank of the Philippine Islands. A slower economic growth may compel the central bank to cut the required reserves earlier, Neri said after the inflation data.

Bangko Sentral will consider price risks as well as potential economic growth slowdown arising from the budget impasse and a softer global economy when it decides on monetary policy on May 9, it said in a statement after the inflation data.

Last year’s rate increases have yet to take root, Guinigundo said in Thailand, citing a 12- to 18-month monetary policy lag. Swings in global oil prices and a prolonged El Niño dry spell are upside risks to inflation, he said.

What Our Economists Say...

“The latest inflation print inches the BSP closer toward unwinding last year’s tightening -- but we’re still not there yet. Policy makers have struck a cautious tone in recent months to avoid sending signals of premature easing. There are also upside risks to inflation in the coming months.”

-- Justin Jimenez, Bloomberg Economics

Read: PHILIPPINES INSIGHT: CPI Slowdown Still Not Enough for BSP Cut

The peso fell as much as 0.3 percent on Friday before trading little changed at 52.15 a dollar at noon break in Manila. The main stock index climbed 0.2 percent.

--With assistance from Ditas Lopez, Claire Jiao, Andreo Calonzo and Cecilia Yap.

To contact the reporters on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net;Siegfrid Alegado in Manila at aalegado1@bloomberg.net

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Clarissa Batino, Ditas Lopez

©2019 Bloomberg L.P.