AT ITS meeting on monetary policy Thursday, Feb. 6, 2020, the Monetary Board decided to cut the interest rate on the Bangko Sentral ng Pilipinas (BSP) overnight reverse repurchase (RRP) facility by 25 basis points (bps) to 3.75 percent.
The interest rates on the overnight lending and deposit facilities were reduced to 4.25 percent and 3.25 percent, respectively.
Latest baseline forecasts indicate a broadly steady path of inflation for 2020 and 2021, with average inflation remaining within the target range of three percent ± one percentage point.
Inflation expectations also continue to be firmly anchored within the target over the policy horizon, the Monetary Board said.
Meanwhile, the risks to the inflation outlook continue to tilt slightly toward the upside in 2020 and toward the downside in 2021.
Upside risks to inflation over the near term emanate mainly from potential upward pressures on food prices owing in part to the African swine fever outbreak and tighter international supply of rice, it said.
Moreover, it said there continues to be the burden on the economy posed by the ongoing Taal Volcano eruption and the aftermath of typhoon Tisoy.
However, it noted that uncertainty over trade and economic policies in major economies continue to weigh down on global demand, thus mitigating upward pressures on commodity prices.
China virus
The Monetary Board also observed that prospects for global economic growth have weakened further amid geopolitical tensions.
At the same time, it noted that the spread of the 2019 novel coronavirus acute respiratory disease could have an adverse impact on economic activity and market sentiment in the coming months.
“Given these considerations, the Monetary Board concluded that the manageable inflation environment allowed room for a preemptive reduction in the policy rate to support market confidence,” the Monetary Board said.
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.
Going forward, the BSP will remain watchful over emerging price and output conditions to ensure that monetary policy settings remain consistent with price stability while supporting sustained non-inflationary growth over the medium term. (PR)