Philippines: BSP ends cycle of cutting rates
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) decided yesterday to step on the brake pedal, keeping its interest rates unchanged to monitor the impact of previous monetary actions.
In a press briefing, BSP officer-in-charge Francisco Dakila Jr. said the central bank believes that prevailing monetary view settings remain appropriate.
The overnight reverse repurchase rate was maintained four percent, while the interest rates on the overnight deposit and lending facilities were likewise unchanged at 3.50 percent and 4.50 percent, respectively.
“This is supported by the benign inflation outlook and a firm outlook for domestic economic growth. At the same time, a prudent pause in monetary adjustments will enable the cumulative 75-basis-point reduction in policy rates as well as the cut in reserve requirement ratios to continue working their way through the economy,” Dakila said.
The BSP has reduced interest rates by 75 basis points so far this year, partially unwinding the tightening cycle that saw benchmark rates rise by 175 basis points last year.
It has also lowered the reserve requirement ratio for big-and mid-sized banks by 400 basis points and for small banks by 200 basis points to free up more funds to boost economic activity.
Inflation eased to a 43-month low of 0.8 percent in October from 0.9 percent in September, bringing the average to 2.6 percent in the first 10 months of the year.
Dakila said inflation has likely bottomed out in October and would start to move closer to the mid point of the central bank’s two to four percent target in 2020.
He said the BSP has further lowered its inflation forecast to 2.4 instead of 2.5 percent for this year but maintained its 2.9 percent projections for 2020 and 2021.
“Upside risks to inflation over the near term emanate mainly from the potential impact of the African Swine Fever outbreak on food prices and from potential volatility in oil prices amid geopolitical tensions in the Middle East,” he said.
According to Dakila, weak global economic prospects continue to temper the inflation outlook, as uncertainty over trade policies weigh down on global economic activity and demand.
The economy bounced back in the third quarter with a gross domestic product (GDP) growth of 6.2 percent after easing to a four-year low of 5.5 percent in the second quarter from 5.6 percent in the first due to the impact of the US-China trade war, the tightening episode by the BSP last year as well as the delayed implementation of the 2019 national budget.
The central bank, the BSP deputy governor said, is confident that the fiscal budget for 2020 would be passed within this year.
ING Bank Manila senior economist Nicholas Mapa said the BSP opted to gauge the impact of its latest moves before acting further after aggressively rolling back policy rates and conducting operational adjustments.
Mapa said the Monetary Board is set to resume its easing cycle to boost economic growth with a 50 basis points rate cut next year.