BSP cuts rates anew as it sees inflation has been tamed

The central bank on Thursday reduced its key interest rate by a quarter of a percentage point — as expected by market watchers — resisting pressures to implement deeper cuts in the wake of disappointing second quarter economic growth figures announced by the government earlier in the day.

In a press briefing, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the Monetary Board decided to cut the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points to 4.25 percent “based on the assessment that price pressures have continued to ease since the previous meeting.”

Diokno said inflation was likely to stay within the 3 percent range from 2019 to 2021 “plus or minus 1 percentage point.”

Expected inflation, he said, “has also moderated further.”

The BSP decision on Thursday (Aug 8) marked the second rate cut by the central bank in 2019 after a 25-basis point reduction in interest rates last May.

The monetary authority also recently concluded a 2 percentage point cut in banks’ reserve requirements staggered in three months in an effort to buttress the country’s flagging economic growth with fresh cash.

The Philippine economy grew by only 5.5 percent in the second quarter of 2019 slowing further from the already disappointing pace of 5.6 percent recorded in the first three months of the year.

Authorities attributed the slowdown to the delayed passage of this year’s national budget with constrained public spending — a phenomenon that the central bank hopes to help counteract with looser monetary policy.

Diokno added that Thursday’s rate cut was supported by the assessment that 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.”

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

The Monetary Board also noted that prospects for global economic activity are likely to remain weak amid sustained trade tensions among major economies.

“Domestically, the outlook for growth continues to be firm” because of expected higher household spending and a government splurge on infrastructure.

The 2019 national budget was enmeshed in a squabble by legislators over corruption-laden pork funds.

Diokno said the benign inflation outlook provided room for further reduction in the policy rate as a preemptive move against  weakening global economic growth./TSB