THE Monetary Board (MB) on Thursday, August 8, decided to reduce key policy rates by another 25 basis points (bps) as price pressures continued to ease.
The board arrived at this decision a couple of days after the Philippine Statistics Authority (PSA) reported that the headline inflation rate continued to slow down and was recorded at only 2.4 percent in July 2019, a new low in more than two years.
Earlier Thursday, the PSA also reported that the economy has continued to slow down, with gross domestic product (GDP) expanding by only 5.5 percent.
This was the second rate cut implemented by the MB. In 2018, policy rates were raised five times by a total of 175 bps in a bid to stem inflation.
A cut in policy rates is expected to result in lower market rates, encourage lending and stimulate demand.
In a statement issued after its meeting Thursday, the MB said it decided to cut the Bangko Sentral ng Pilipinas (BSP) overnight reverse repurchase (RRP) facility by 25 bps to 4.25 percent.
Accordingly, the interest rates on the overnight deposit and lending facilities were reduced to 3.75 percent and 4.75 percent, respectively.
The board cited latest baseline forecasts of the BSP which indicate that inflation remains likely to settle within the government's target of 3.0 percent ± 1 percentage point for 2019 up to 2021.
"Inflation expectations have also moderated further to levels consistent with the inflation target based on the BSP’s survey of private sector economists. Moreover, the risks to the inflation outlook continue to be seen as broadly balanced for 2019 and 2020, while they are seen to tilt to the downside for 2021," policymakers stated.
"Weaker global economic prospects continue to temper the inflation outlook. The potential adverse effects of a prolonged El Niño episode to inflation have subsided," the MB added.
The MB said prospects for global economic activity are likely to remain weak amid sustained trade tensions among major economies, such as between the United States and China.
On the domestic front, the outlook for growth continues to be firm on the back of a projected recovery in household spending and the accelerated implementation of the government’s Build Build Build infrastructure program.
"On balance, therefore, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate as a pre-emptive move against the risks associated with weakening global growth," the board said.
"Going forward, the BSP will continue to monitor price and output conditions to ensure that monetary policy remains appropriately supportive of sustained non-inflationary economic growth over the medium term," it added. (From PR/SunStar Philippines)