MANILA: The Philippines central bank has scope to do a 50-basis-point rate cut in one policy meeting, but such a big reduction would only happen if there are worries about a hard landing, its governor said on Monday (Sep 30).
A 25-bps rate cut will be the norm if there is no risk of a hard landing, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona told reporters at a banking event.
He also said the BSP has moved its rate-setting meeting to Oct 16 from Oct 17 because of a scheduling issue.
After announcing a 250-bps reduction in the bank’s reserve requirement ratio to 7.0 per cent starting October, Remolona said more cuts could be expected that would bring the ratio to zero before his term expires on 2029.
On Monday, the BSP also said it was working with the banking industry to improve the peso interest rate swap market by establishing a new overnight reference rate (ORR) based on its daily reverse repurchase auctions.
The ORR, which the BSP and Bankers Association of the Philippines (BAP) want to be recognised by the International Swaps and Derivatives Association, should provide better benchmarks for pricing loans, which currently is unevenly based on yields from thinly traded government securities.
In tandem with that initiative, the BSP and BAP are also working to expand the government securities repo market to increase trading volumes and provide another alternative benchmark, especially for short term loan rates.
“A benchmark yield curve will help in the pricing of bank loans and corporate bonds, and thus strengthen the transmission mechanism for monetary policy,” Remolona said.
