BSP cuts benchmark interest rate by 25 bps

Published August 8, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

As widely expected, the central bank’s Monetary Board on Thursday slashed the benchmark overnight rates by 25 basis points (bps) with benign inflation and to support a “non-inflationary” growth.

MB file
MB file

The decision came after the Philippine Statistics Authority reported that GDP growth slowed unexpectedly in the second quarter to 5.5 percent.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the decision to reduce interest rates came from its assessment that “price pressures have continued to ease” and that inflation expectations have also moderated further.

Diokno said the domestic outlook for growth is still firm as they expect a recovery in household spending and the accelerated infrastructure spending program of the government to make up for the four-month delay in the budget impasse earlier in the year.

“On balance, therefore, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate as a pre-emptive move against the risks associated with weakening global growth,” said Diokno. He added that the BSP “will continue to monitor price and output conditions to ensure that monetary policy remains appropriately supportive of sustained non-inflationary economic growth over the medium term.”

BSP Deputy Governor Francisco G. Dakila Jr. said the BSP revised the inflation forecast for 2019 lower to 2.6 percent from the previous 2.7 percent (made in June 20). Next year’s inflation estimate was also reduced to 2.9 percent from three percent.

For the first time, the BSP disclosed its 2021 inflation forecast which was also 2.9 percent, within the two-four percent government target.

Dakila said the main factors that contributed to their benign inflation outlook and the revision of the forecasts came from the continuing relaxation of food price pressures.

The oil price assumption for 2018 and 2019 has likewise been revised lower to $63.88 per barrel for 2019 from the previous $64.56 per barrel (June 20). For 2020, it is $60.39 per barrel, lower than its last estimate of $61.35 per barrel.

The foreign exchange assumption remains “broadly stable over the near term… with some support” coming from the recent decision of the US Federal Reserve to cut US interest rates by 25 bps.

Diokno, in the meantime, said that overall the risks to the inflation outlook also remain broadly balanced for 2019 and 2020 – “while they are seen to tilt to the downside for 2021.”