By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) has slashed key rates by another 50 basis points (bps) yesterday, reducing the overnight reverse repurchase (RRP) facility to 2.25 percent, the lowest RRP rate so far.
Since February this year, the Monetary Board has trimmed 175 bps off the benchmark rate while also reducing rates of the overnight deposit and lending facilities to 1.75 percent and 2.75 percent.
BSP Governor Benjamin E. Diokno reiterated that the local economy has slowed due to COVID-19 lockdown and containment measures implemented since mid-March, and prompting another decision to aid in the recovery by reducing RRP further.
Diokno said the Monetary Board has “decided that a further reduction in the policy rate amidst a benign inflation environment would help mitigate the downside risks to growth and boost market confidence.”
BSP Deputy Governor Francisco G. Dakila Jr., who said this was the lowest policy rate to date, also announced the latest BSP inflation forecast for 2020 of 2.3 percent and 2.6 percent for 2021, higher than previous projection of 2.2 percent and 2.5 percent.
Even with the adjustments to inflation estimates, Dakila said the manageable inflation “demonstrates policy space.”
With a benign inflation environment, sufficient liquidity and improving market function, Diokno said the Monetary Board which he chairs think that “keeping an accommodative stance will further ease the cost of borrowing and ensure ample credit and liquidity in the financial system as the economy transitions toward recovery in the coming months.”
Diokno also said that with a slowing local economy, the global growth outlook remains bleak and has “deteriorated further as considerable uncertainty still surrounds the extent of the health crisis.”
“Even as economies begin to reopen, the global recovery would likely be protracted and uneven,” he said, noting a “critical need” for measures to encourage economic recovery and to support financial conditions.
The BSP chief said they are committed to deploying its “full range of monetary instruments and regulatory relief measures as needed” for a “non-inflationary and sustainable growth.”
Before Thursday, the benign inflation has allowed the Monetary Board to cut rates for three monetary policy meetings in a row. The first reduction was on February 6 of 25 bps, another 50 bps on March 19 and an off-cycle 50 bps policy action last April 16 for a cumulative 125 bps.
The latest policy rate cut drew mixed reactions from the market since most had expected a Monetary Board action in July or the third quarter this year as monetary stimulus.