The Bangko Sentral ng Pilipinas (BSP) frontloading a ‘jumbo reduction’ in key policy rates might be ‘drastic’ and could further weaken the Philippine peso, according to the Bank of the Philippine Islands (BPI).
Speaking to reporters on Wednesday night, BPI President and Chief Executive Officer (CEO) Jose Teodoro K. Limcaoco said he personally thinks that the BSP will not lower the borrowing costs by 50 basis points.
‘It’s drastic. It might send the wrong signal,’ Limcaoco warned.
If the BSP cuts ‘significantly faster’ than the United States Federal Reserve, then that could further weaken the local currency, Limcaoco added.
The peso dropped to an all-time low of P59.17 against the US dollar on Wednesday, losing 18.5 centavos when it opened at P58.95.
It remained at the P59-level on Thursday, closing at P59 after opening at P59.13, based on the data by the Bankers Association of the Philippines.
‘You have to look at what the Fed is doing,’ the banker said, adding that any local monetary policy decisions would take into account the magnitude of the Fed’s move in December.
This comes even as the economy grew by a mere 4 percent in the third quarter of this year, the weakest pace since the first quarter of 2021, when it contracted by 3.8 percent. If the pandemic years were to be excluded, this is the slowest pace since 2011.
Limcaoco noted that while people might be ‘disappointed’ with the 4 percent growth, the rest of the world is growing at 2 percent.
‘So, the Philippine economy is still growing. It’s not growing as fast as it used to, but it is still growing,’ the banker added.
To prop up the economy further, the market is anticipating that the BSP may implement an off-cycle monetary policy easing, particularly a reduction in large banks’ reserve requirement ratio, currently at 5 percent.
The Monetary Board, the BSP’s highest policymaking body, is set to convene on December 11 for its rate-setting meeting.
Limcaoco said it is up to the BSP to intervene, as they are responsible for monetary policy and keeping prices steady.
‘If they believe that a weak peso might be inflationary, then they might,’ Limcaoco added.
However, the BSP had said that it allows the exchange rate to be determined by market forces.
‘When we do participate in the market, it is largely to dampen inflationary swings in the exchange rate over time rather than to prevent day-to-day volatility,’ the central bank said.