BSP to cut policy rates, reserve requirement in 2019 —FMIC

The Bangko Sentral ng Pilipinas (BSP) is likely to cut the reserve requirement ratio (RRR) by at least 2 percentage points in the first half of the year, followed by a cut in policy rates in the second semester, First Metro Investment Corp. (FMIC) said Tuesday.

FMIC senior vice president Christopher Ma. Carmelo Salazar noted there are emerging factors that would prompt central bank is expected to cut the reserve requirement ratio in the first half.

“Offshore flows are starting to come back in, helping to improve the liquidity in the market," Salazar told reporters during the FMIC Annual Economic and Capital Markets Briefing.

Domestic liquidity or M3—the broadest measure of money circulating in the financial system—expanded by 8.4 percent to P11.3 trillion in November.

Salazar said current conditions show that the Philippines could accommodate a cut in the reserve requirement by 2 percentage points, 1 percentage point in the first quarter and another percentage point in the second quarter.

RRR is the amount of cash a bank must hold in reserves against deposits made by customers. At 18 percent, the country currently has one of the highest reserve requirements across the globe.

The Bank of the Philippine Islands (BPI) has also been expecting BSP to reduce the RRR by another 2 percentage points this year.

BSP Governor Nestor Espenilla Jr. earlier said he personally wants to cut the reserve requirement ratio to single-digit level under his term.

Salazar said FMIC expects the BSP to cut policy rates by 25 basis points in the second half.

“With inflation tame, we expect the BSP to remain on hold for the year, with a possible 25-basis-point cut in the second half,” he said.

FMIC pegged inflation at 3 to 3.5 percent this year, compared with 5.2 percent in 2018.

The Monetary Board hiked rates five consecutive times in 2018, a cumulative total of 175 basis points in light of inflationary concerns. —VDS, GMA News