MANILA -- Philippine monetary officials on Thursday slashed the Bangko Sentral ng Pilipinas’ (BSP) key policy rates by 25 basis points as a pre-emptive move to support growth amid the negative external environment and some domestic issues.
The reduction brought the central bank’s overnight reverse repurchase (RRP) rate to 3.75 percent, the overnight lending rate to 4.25 percent, and the overnight deposit rate to 3.25 percent.
In a briefing Thursday, BSP Governor Benjamin Diokno said inflation, which has been rising since November 2019, is expected to remain on a steady and within-target path until next year.
He said inflation risks are tilted on the upside this year due to the African swine fever and the rice supply issues in the international market, as well as the impact of Typhoon Tisoy and Taal Volcano eruption.
“However, uncertainty over trade and economic policies continue to weigh down on global demand, thus, mitigating upward pressures on commodity prices,” he added.
The central bank chief further said members of the policy-making Monetary Board (MB) noted that the novel coronavirus (2019-nCoV) “could have an adverse impact on economic activity and market sentiment in the coming months.”
With these challenges, Diokno said there is a need for a “pre-emptive” reduction in rates after the total of 75 basis points cuts in May, June, and September 2019.
“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,” he added.
During the same briefing, BSP Deputy Governor Francisco Dakila Jr. said the Board hiked its 2020 average inflation forecast to 3 percent from 2.9 percent during its rate-setting meet last December.
The MB, however, kept the 2021 average inflation forecast to 2.9 percent
“That is because when you look at the factors that led to the change in the forecast, they really are very short term,” he said.
Dakila said inflation is seen to hit the mid-point of the government’s 2-4 percent target band in the next few months but is not expected to surpass the upper-end of the target.
“Base effects are now turning on the positive side because we had the reverse direction for most of 2019,” he said. (PNA)
