Central bank slashes interest rates by 25 basis points

MANILA -- The central bank's Monetary Board decided on Thursday to cut key policy interest rates for the fourth time this year as inflation environment continues to be benign.

The Bangko Sentral ng Pilipinas (BSP) said that interest rates were reduced by 25 basis points to 3.50 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.50 percent for the overnight lending or repurchase (RP) facility.

"The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. This is the fourth time this year that the BSP has cut its policy rates and brings the cumulative reduction in BSP policy rates in 2012 to 100 basis points," the central bank said, adding that the Monetary Board's decision was based on its assessment that the inflation environment continues to be benign.

Latest baseline forecasts indicate that the future inflation path remains within target for 2012 up to 2014, with inflation expectations aligned to the inflation target within the policy horizon. The central bank is eyeing 3-5 percent inflation rate for this year.

Meanwhile, the BSP said that risks to the inflation outlook continue to be broadly balanced.

"Potential upside risks to inflation remain, including pending power rate adjustments and higher global prices for some grains. Nonetheless, subdued global demand could moderate upward pressures on international commodity prices, thus tempering the overall outlook for inflation," it said.

At the same time, the Monetary Board noted that global economic prospects continue to face considerable headwinds.

"World economic conditions are likely to remain tepid as fiscal and financial sector stresses in advanced economies continue to dampen market confidence. The domestic underpinnings of Philippine economic growth remain firm. However, additional policy support could help ward off the risks associated with weaker external demand by encouraging investment and consumption," the BSP said.

Given these considerations, the Monetary Board is of the view that monetary easing consistent with a manageable inflation outlook will help buffer domestic demand against ongoing global economic strains, it said.

Going forward, the BSP said it will closely monitor evolving price and output conditions to ensure that policy settings continue to effectively contain inflation while maintaining the growth momentum. (SDR/Sunnex)