BSP may deepen interest rate cuts

The Bangko Sentral ng Pilipinas (BSP) is prepared to deploy a deeper round of interest-rate cuts as a secondary defense if the country's economic expansion fails to hold the five-percent level, according to the central bank chief.

- By DERCO ROSAL

Speaking to the Tuesday Club on Jan. 6, BSP Governor Eli M. Remolona Jr. said that while current data supports a “less dovish” posture, any deterioration in consumer demand or national output would force the central bank to expand its easing beyond the planned 25-basis-point (bp) cut.

"If the economy grows below five percent, then I think there are grounds for one more cut beyond the 25 bps," Remolona said, noting that cutting the benchmark rates twice more would signal a more serious problem.

"Two more rate cuts would essentially mean that conditions are worse than we expected. That would require a negative surprise in the data," Remolona said.

Currently, however, the policy-setting Monetary Board (MB) is close to its desired policy stance, which leaves the board limited room for further rate adjustments.

Remolona explained that when the board sets monetary policy, it considers the current growth rate as well as projected growth rates over a year. The BSP can intervene if weaker growth reflects soft demand.