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BSP cuts key rate by 25 bps to 4.0%

Updated

By Lee Chipongian 

The Bangko Sentral ng Pilipinas (BSP) reduced policy rate by 25 basis points (bps) Thursday, fulfilling the promise of Governor Benjamin E. Diokno to bring down overnights by 75 bps for 2019.

This is the third time that the Monetary Board cut key overnight rates this year, each by 25 bps. The first was on May 9 and the second was just August 8.

A logo of the Bangko Sentral ng Pilipinas is seen at their headquarters in Manila, (REUTERS/Romeo Ranoco / MANILA BULLETIN)

A logo of the Bangko Sentral ng Pilipinas is seen at their headquarters in Manila, (REUTERS/Romeo Ranoco / MANILA BULLETIN)

As a result, the overnight reverse repurchase rate is now at four percent after the 25 bps cut, while the overnight deposit rate and lending facilities now have a rate of 3.5 percent and 4.5 percent, respectively.

 Diokno said the Monetary Board “believes that the benign inflation outlook provides room for a further reduction in the policy rate to support economic growth and reinforce market confidence.”

 “(BSP) will continue to monitor emerging price and output developments to ensure that monetary policy settings remain consistent with price stability while being supportive of sustained non-inflationary economic growth over the medium term,” the BSP chief said.

Diokno also said the “balance of risks to the inflation outlook have shifted toward the upside for 2020, while it is seen to tilt to the downside for 2021.”

 “Upside risks to inflation over the near term emanate mainly from volatility in oil prices due to geopolitical tensions in the Middle East and from the potential impact of the African Swine Fever outbreak on food prices. Meanwhile, the subdued pace of global economic activity continues to temper the inflation outlook,” said Diokno.

 Another risk the Monetary Board is continuously monitoring is the weak global economic growth due to the ongoing trade spat between the US and China.

“(But) firm domestic spending and progress on policy reforms will serve as a buffer against global headwinds,” said Diokno.

 He added that “given these considerations, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate to support economic growth and reinforce market confidence.”

 BSP Assistant Governor Edna C. Villa of the Monetary and Economics Sector gave the latest inflation forecasts for 2020 and 2021 which was the same as the August 8 projections of 2.9 percent for both periods.

 On Wednesday, Diokno already announced that for 2019, the latest inflation estimate is a lower average of 2.5 percent from the previous 2.6 percent forecasts, also from August 8.

Villa said inflation rate will continue to ease for the rest of 2019 particularly for November because of base effects as “oil and rice prices peaked in the same period in 2018.” Last year, inflation rate rose to 6.7 percent in September and October.

“We will continue to monitor price developments,” she said, and that BSP is constantly looking at the evolving market conditions.

 Dennis D. Lapid, Director of the BSP’s Department of Economic Research, when asked if the BSP will stop at 75 bps rate increase for the year, said that since the Monetary Board still have two policy meetings scheduled before the year ends, they will continue to “look at new data as they come” especially the third quarter GDP numbers.

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