BSP cuts interest rates by 25 basis points

The Bangko Sentral ng Pilipinas (BSP) on Thursday decided to ease policy rates by 25 basis points in line with market expectations.

BSP Governor Benjamin Diokno said the policy-setting Monetary Board decided to cut rates by another 25 basis points (bps), bringing the overnight borrowing rate to 4.25%, the overnight lending to 4.75%, and the overnight deposit rate to 3.75%.

“The Monetary Board’s decision is based on its assessment that price pressures have started to ease since its last meeting,” he said in a press conference in Manila City.

This is the second policy rate cut this year since the board decided to lower the key rates by 25 bps in May.

inflation settled at 2.4% in July, the slowest in 31 months.

The PSA on Thursday reported the economy grew by 5.5% in the second quarter, the slowest in four years.

“The risks to the inflation outlook continue to be seen as broadly balanced for 2019 and 2020, while they are seen to tilt to the downside for 2021,” Diokno said.

“Weaker global economic prospects continue to temper the inflation outlook. The potential adverse effects of a prolonged El Niño episode to inflation have subsided,” he added.

In the same press conference, Deputy Governor Francisco Dakila Jr. noted a downward revision in the inflation forecasts for both this year and the next.

Inflation this 2019 is now expected at 2.6%, while an earlier forecast pointed to 2.7%, and to 2.9% for 2020 from a previous outlook of 3.0%.

“The main factors that have contributed to the benign inflation outlook and the downward revisions are … We see the continuing relaxation of constraints in food prices, in particular, and the impact of the tariffication of rice,” he said.

More rate cuts

Diokno said the door is open to more rate cuts.

“On balance, therefore, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate as a preemptive move against the risks associated with a weakening global growth,” he said.

“Going forward, the BSP will continue to monitor price and output conditions to ensure the monetary policy remains appropriately supportive of sustained non-inflationary economic growth over the medium term,” Diokno added.

In July, Diokno said a cut in interest rates must precede a cut in the reserve requirement ratio of 16%. —VDS, GMA News