(Bloomberg) -- Philippine central bank Governor Eli Remolona said the benchmark interest rate may be reduced by a half percentage point this year, as monetary authorities adopt a slower pace of policy easing.
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The first 25-basis point cut may happen in the first half of the year, followed by another quarter-point reduction in the second half, Remolona told reporters on Saturday in the northern city of Baguio.
The BSP last year slashed its key rate by a total of 75 basis points to bring it to a two-year low of 5.75% as price pressures eased. The central bank expects inflation to remain under control, projecting it would range from 2.5% to 3.3% in January from 2.9% in December. Remolona said inflation is likely to stay within the 2%-4% target this year.
The central bank meets next to set the policy rate on Feb. 13.
The central bank chief said monetary authorities are also discussing the possibility of slashing banks’ reserve requirement ratio by another 200 basis points potentially around mid-year.
A further reduction in both the BSP key interest rate and banks’ RRR should “stimulate the economy,” he said. “But the nice thing about the reserve requirement is it affects both the deposit rate and the lending rate.”
The central bank last reduced the RRR in October — to 7% of deposits for big banks — that released about $7 billion in funds into the financial system to help spur one of Asia’s fastest-growing economies. The Philippines’ gross domestic product expanded below government target, at 5.6%, last year amid sluggish investment, consumption and farm output, although officials say the economy should regain momentum this year.
“We don’t see hard landing in the near future,” Remolona said, adding there’s no need to cut interest rates by as much as 100 basis points this year.
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