AS widely expected, the country’s monetary authorities on Thursday resumed trimming key interest rates by 25 basis points (bps) after pausing in June, and adjusted downward its inflation outlook for this year and next.
In a briefing at the Bangko Sentral ng Pilipinas (BSP) complex in Manila, BSP Governor Benjamin Diokno announced that the central bank’s policy-making Monetary Board slashed rates on the overnight reverse repurchase, deposit and lending facilities to 4.25 percent, 3.75 percent and 4.75 percent, respectively.
The move was anticipated by many economists and analysts interviewed by The Manila Times, including those from ING Bank Manila, HSBC, Nomura Securities Ltd. and Union Bank of the Philippines.
“The Monetary Board’s decision [to cut rates] is based on its assessment that price pressures have continued to ease since the previous meeting,” Diokno told reporters after the board’s meeting on Thursday.
Latest baseline forecasts indicated that consumer price growth is still likely to settle within the 3-percent goal, plus or minus 1.0 percentage point, for both 2019 and 2020, the BSP chief said, adding the inflation expectations had moderated further to levels consistent with the target.
Also during the briefing, BSP Deputy Governor Francisco Dakila Jr. reported that the board cut its inflation forecast to 2.6 percent for this year from 2.7 percent, and to 2.9 percent for 2020 from 3.0 percent. Its 2021 projection of 2.9 percent remains unchanged.
This came after the Philippine Statistics Authority reported on Tuesday that the rate of the increase in the prices of goods and services in July further eased to 2.4 percent from 2.7 percent in June and 5.7 percent in July 2018. The latest figure falls within the BSP’s projection of between 2.0 percent and 2.8 percent.
“[T]he 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,” Diokno said.
Weaker economic prospects continue to temper the inflation outlook, although the potential adverse effects of a prolonged El Niño episode on inflation have subsided, according to him.
“On balance, therefore, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate as a preemptive move against the risks associated with weakening global growth,” Diokno said.
Dakila said the Bangko Sentral’s global oil prices assumption for this year was reduced to $63.88 per barrel from $64.56 per barrel, and to $60.39 per barrel from $61.35 per barrel for 2020.
“These factors have contributed to the revisions in the inflation outlook,” he added.
“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,” Diokno said.