BSP cuts rates by 25 basis points

Published February 6, 2020, 12:00 AM

by manilabulletin_admin

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By Lee C. Chipongian

As expected by the market, the central bank’s Monetary Board has trimmed its benchmark rate by 25 basis points (bps) on Thursday, its first policy meeting for the year, and as a signal that it will continue to ease on policy stance as a pro-growth move.

As a result, the BSP key interest rate is now at 3.75 percent. The interest rates on the overnight lending and deposit facilities are also at 4.25 percent and 3.25 percent.

The Bangko Sentral ng Pilipinas (BSP) also revised its inflation forecast for 2020 higher to three percent from 2.9 percent in a December assessment, but has decided to keep the 2021 estimate at 2.9 percent.

BSP Governor Benjamin E. Diokno, in announcing the rate cut, said the manageable inflation environment “allowed room for a preemptive reduction in the policy rate to support market confidence.”

“While recent demand indicators still point to a firm outlook for the domestic economy, the Monetary Board believes that a policy rate cut would provide additional policy support to ward off the potential spillovers associated with increased external headwinds,” said Diokno.

He said however that the risks to the inflation outlook is still “slightly toward the upside” this year and on the downside in 2021. Upside risks to inflation are still the African Swine Fever outbreak and tighter supply of rice.
Diokno added: “There continues to be the burden on the economy posed by the ongoing Taal Volcano eruption and the aftermath of typhoon Tisoy. However, uncertainty over trade and economic policies in major economies continue to weigh down on global demand, thus mitigating upward pressures on commodity prices.” He also noted that the spread of the 2019 novel coronavirus “could have an adverse impact on economic activity and market sentiment in the coming months.”

Diokno said the Philippines’ sustained growth momentum is intact amid a favorable inflation environment, strong liquidity and credit and “modest” fiscal shortfalls.

“I believe that the Philippine economy remains in a position of strength to weather uncertainties in the global environment,” Diokno told members of the Management Association of the Philippines in a morning forum, before he presided over the Monetary Board’s policy meeting hours later.

He said that sustained growth, a healthy external sector and banking system, as well as a balanced liquidity, credit and debt position, and a manageable inflation, an “appropriate mix of monetary, fiscal, and other structural policies is crucial”.

Diokno said during the forum that he is committed to continue easing the policy stance and reiterated that for 2020, the BSP key rate could get slashed by at least 50 bps.

Diokno said the risks and challenges to both growth and inflation outlook has to be managed carefully.

“On the domestic front, addressing infrastructure bottlenecks and enhancing disaster resilience amid increased intensity and frequency of natural hazards are among the key challenges confronting the economy,” he said.

“On the external front, major risks include a synchronized economic slowdown, rising geopolitical tensions, higher tariff barriers between the US and its trading partners, and the recent novel coronavirus outbreak which has now been assigned a ‘high-impact’ global risk assessment by the World Health Organization,” he added.