MANILA, Philippines (Updated 5:19 p.m.) — The Bangko Sentral ng Pilipinas on Thursday cut its policy rate from a decade-high amid tame inflation recorded in recent months and slower-than-expected economic growth in the first quarter.

At its meeting, the BSP’s Monetary Board decided to cut key rate by 25 basis points to 4.5% effective Friday.

The central bank said its decision was “based on its assessment that the inflation outlook continues to be manageable with easing price pressures owing to the decline in food prices amid improved supply conditions.”

“In deciding on the stance of monetary policy, the Monetary Board noted the impact of the budget delays on near-term economic activity, but took the view that the prospects for domestic demand remain firm, to be supported by a projected recovery in household spending and the continued implementation of the government’s infrastructure program,” the central bank said.

“In addition, the Monetary Board observed that the global economic growth momentum has slowed down in 2019. Meanwhile, indications of slower growth in domestic liquidity and credit require careful monitoring,” it added.

The central bank tightened monetary policy by a cumulative 175 basis points to 4.75% last year after inflation hit a near-decade high in September and October. Soaring prices have eased since then.

Consumer price growth softened to 3% in April on the back of moderate food inflation. Year-to-date, inflation averaged 3.6%, well within the BSP’s 2%-4% annual target.

Also on Thursday, the government reported that gross domestic product — or the value of all finished goods and services produced in the country — expanded 5.6% in the first three months of 2019, slower than 6.3% in the previous quarter and 6.5% recorded in the comparable period last year.

The latest reading was the slowest since 5.1% registered in the first quarter of 2015 and settled below the state’s 6%-7% target for 2019.

Effect of delayed 2019 budget

At a press conference, Socioeconomic Planning Secretary Ernesto Pernia blamed Congress’ failure to pass the 2019 national budget on time for the economy’s disappointing performance in the first quarter.

A spat among lawmakers delayed the approval of the new outlay, leaving fresh projects unfunded and crimping state spending, which accounts for a fifth of the country’s GDP. The budget bill was signed into law in mid-April.

Public spending grew 7.4% in the first quarter, lower than 13.6% in the same period in 2018, government data showed.

Commenting on the BSP’s decision, Capital Economics said Thursday’s rate cut  is likely to be followed by further easing later in the year. 

“Comments from the press conference show that easing inflation was the main reason behind today’s cut, with the monetary board noting that ‘the inflation outlook is manageable’ amid ‘easing price pressures,’” the London-based think tank said.

“Another reason we expect more cuts is that growth is likely to continue to underwhelm. GDP figures released today show that growth dropped to a four-year low in Q1, undershooting expectations. While some of this was due to temporary factors, we still think growth this year will be weaker than last year’s 6.2%,” it added. — Ian Nicolas Cigaral

Source: https://www.philstar.com/business/2019/05/09/1916435/bsp-cuts-policy-rate-amid-benign-inflation-slow-q1-gdp-growth#Ttq32YM5jY4SbD6S.99