Philippine Central Bank Board Member Says ‘No Rush’ to Cut Rates

(Bloomberg) -- The Philippines central bank can wait for more economic data before easing monetary policy again, a member of the policy-setting board said.

“In my view, there’s no rush” to cut interest rates and reduce the reserve requirement ratio for banks, Bruce Tolentino, one of three economists on the seven-member Monetary Board, said in an interview in Manila on Wednesday. “The data will tell the story moving forward.”

Bangko Sentral ng Pilipinas paused after cutting interest by 25 basis points in May, taking a gradual approach to lowering borrowing costs at the same time that it brings down the reserve ratio.

Governor Benjamin Diokno said this week the central bank prefers to be patient and prudent on its policy steps, though he’s previously signaled a willingness to cut rates in the second half of the year given the Federal Reserve’s dovish stance.

Read: Bangko Sentral Governor says further easing depends on how strong growth drivers delivered

Tolentino said there’s a limit on what rate cuts can do for an economy. Banks wouldn’t necessarily lend more to industries with low productivity, like agriculture, even if rates come down. Government spending on infrastructure is key to spurring those industries, he said.

The peso rose 0.1% at close, halting a four-day drop, to 51.11 per dollar on Thursday. The main stock index rose 1.4%.

Tolentino’s comment “is on the prudent side to not push market expectations too markedly in either direction,” said Alan Cayetano, foreign exchange trading head at Bank of the Philippine Islands. While some bet on more monetary easing, “strong growth expectations should argue for a bit of vigilance against excessively loose policy.”

Additional funds released by lowering banks’ reserve ratio must be used for productive purposes, Tolentino said, echoing Diokno. The central bank reduced the ratio of deposits lenders must hold in reserve by 2 percentage points to 16% so far this year.

“We have to make sure that money isn’t just sitting in accounts,” he said.

Bangko Sentral will make its next rate decision on Aug. 8, the same day as the nation will report second-quarter gross domestic product data.

Here are other comments made by Tolentino:

• On Bangko Sentral’s greatest challenge: “I do think we, the BSP, need to rapidly build up its capacity to deal with the challenges posed by financial technology and cybersecurity. Like it or not, Facebook sees an opportunity with Libra, and we need to be able to handle that. The Philippines is one of the countries across the globe that’s deeply involved in Facebook. Our population’s use of that is actually quite intense. BSP needs to be able to address challenges that may rise from use of digital currencies and other types of digital payments systems. We’re now licensing some of these things, but we’re not quite sure where it’ll go and how fast it’ll develop. We need to catch up and get ahead of that challenge. Central banks by nature are conservative. But in order to deal with modern-day challenges, we have to get ahead of the curve and anticipate what will happen.”
• On reforms he wants to see at the bank: “We have to have a better understanding on the supply-side of things. We rely almost completely on the other government agencies for that. We’re realizing that we need to develop internal capacity to understand the nuances when it comes to the production-side, to the real sector of the economy.”

To contact the reporter on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net

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

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