Slowing lending seen soon recovering

The monetary authorities acknowledged on Tuesday the slowdown in bank lending activities in recent months but are optimistic that loan take outs should recover soon enough, likely by early next year.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the moderating bank lending may be traced in part to the monetary tightening cycle it initiated last year.

But with the salvo of easing the central bank subsequently executed, both in the key policy rates and the banks’ deposit reserves, the BSP chief said the recovery is merely months away.

“The monetary policy works with a lag…we started unwinding and then of course we reduced the rates so we’ll look at December, and then maybe early January we’ll resume monetary easing,” Diokno told reporters.

The BSP previously announced sluggish bank lending growth expanding only 9.3 percent in October from September’s 10.5 percent.

Sought on the likelihood of another policy rate cut this month, the central bank chief said the collegial policy-making Monetary Board will wait for latest inflation data on Thursday and from there decide whether an adjustment was necessary.

“When I said we’re done, we’re not expecting that inflation will be very, very low like 0.8 and 0.9 (percent). We’ll see what will be the actual (figure),” he emphasized.

The BSP chief also clarified that while the window for easing monetary policy remains open, unwinding the banks’ deposit reserves is done for 2019.

“(Reducing the banks’ deposit reserves) is closed as we are ahead of schedule. We thought (of reserve cuts through) 2023 when we’ll have it in single digit but we’re already at 14 percent,” Diokno noted.

“In fact, the 1 percent reduction this December, we don’t know its impact yet. But that effectively will release about a hundred billion” in additional liquidity in the financial system, he added.

Earlier, the central bank chief said reducing their rates too hastily has dire consequences and thus the careful execution.

“Usually, if you’re reforms, you should do it gradually so you can monitor its development. That’s the suggested move because if we (cut) drastically, it might prove disruptive (to the system),” he said.

“(Also), we are not desperate. In fact, our policy (structure) right now is appropriate for where we want to be. There is no rush but we will be data-dependent,” he said.