By BLOOMBERG

MANILA • Philippines central bank governor Benjamin Diokno (picture) said it is only a matter of timing as to when monetary policy is eased after last year’s series of interest-rate increases, even as authorities closely monitor oil prices.

A rate cut at the May 9 policy meeting will depend on key data and the outlook on El Nino weather, Diokno said in an interview on Boracay Island in central Philippines on Saturday. If oil prices remain elevated, Bangko Sentral ng Pilipinas (BSP) would keep the rate unchanged next month, he said.

“It’s just a matter of timing,” Diokno, 71, said on the sidelines of a convention of ACI Philippines, a group comprised mostly of currency traders.

“We can cut policy rates and reduce RRR,” he said, referring to banks’ reserve requirement ratio. “We are data-dependent, so we will look at the price of oil at that time.”

The governor said the peso, which is up 0.8% this year to 52.18 against the dollar, is reflecting its true value and could further strengthen with the entry of more Chinese investment.

Diokno said he isn’t ruling out a simultaneous reduction in the key rate and the reserve ratio down the road, pledging to bring the ratio of cash that banks must hold in reserve below 10% by the end of his term in 2023.

Inflation had cooled for five straight months after peaking to a nine-year high in 2018 and could ease to below 3% in the third quarter (3Q), he said.

The governor expects GDP growth of more than 6% in 1Q even after a delay in the approval of the 2019 budget that held back infrastructure spending.

“In the near term, there’s a bit more urgency to cut the RRR as liquidity conditions are tight,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. A reduction in the reserve ratio can come as early as May 9, while the benchmark rate may be cut by 25 basis points (bps) each in 3Q and 4Q, Paracuelles said.

Since taking office in March, Diokno has been signalling an openness to cut the key rate and the reserve ratio, which at 18% is the highest in South-East Asia. The May 9 meeting will come hours after the release of 1Q growth and days after April inflation data.

The BSP, like Bank Indonesia, has yet to reverse 175bps in rate increases last year amid oil price swings and slowing global growth. Indonesia last week left its key rate unchanged for a fifth month.

Some board members are wary of aggressively cutting the reserve ratio as funds that can be unleashed — about 100 billion pesos (RM7.85 billion) for every one percentage point reduction — can be used to speculate against the peso, Diokno said, walking back a March comment on a possible one point cut every quarter.

Diokno doesn’t see a need to intervene in the foreign-exchange market given the peso’s gains. He clarified that the 52 to 55 peso to the dollar forecast in a local television interview on March 12 referred to a range that the government uses in economic assumptions. The currency, supported by overseas remittances, is market-determined and there is no BSP target, he said.

An economics professor known as a straight talker when he was budget secretary, Diokno said he’s getting used to the central bank’s style of being “deliberately vague in communication”.

Other than that, he said he needed very little adjustment when he moved from the budget department after Nestor Espenilla died of cancer in February.

Francis Dakila, currently an assistant governor, will be promoted as BSP deputy governor when Diwa Guinigundo, a four-decade veteran of the central bank, retires in July, Diokno said. — Bloomberg