BSP cuts key rates to record lows

The Bangko Sentral ng Pilipinas (BSP) slashed inter- est rates by another 25 basis points yesterday, bringing back key policy rates to record low levels on the back of benign inflation amid soaring oil prices.

BSP Governor Amando Tetangco Jr. said this action by the central bank’s policy setting Monetary Board brought the overnight borrowing rate to a record low of four percent and the overnight lending rate to six percent.

The interest rates on term reverse repurchase facility and repurchase facility as well as the special deposit accounts (SDA) facility were also reduced accordingly.

This marked the second straight rate-setting meeting that monetary authorities slashed interest rates. Last Jan. 19, the BSP lowered interest rates by 25 bps the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.

Tetangco said the decision to slash interest rates was based on the assessment made by the Monetary Board that the inflation outlook remained within the target range of three percent to five percent and that inflation expectations remained well-anchored.

He added that authorities also noted that domestic demand has continued to grow at a modest pace reflecting mainly the impact of weaker external demand.

Likewise, the BSP chief added that global economic conditions are expected to stay subdued as fiscal and banking sector headwinds in advanced economies affect global output growth

and as market confidence remained fragile.

“Given these considerations, the Monetary Board is of the view that the benign inflation outlook has allowed further scope for a measured reduction in policy rates to support economic activity and reinforce confidence,” he stressed.

The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s gross domestic product (GDP) climbing between five percent and six percent this year after slackening to 3.7 percent last year due to weak global trade and underspending by the Aquino government.

“Going forward, the BSP will continue to monitor emerging demand and price developments to ensure that monetary policy settings remain consistent with price stability while being supportive of non-inflationary economic growth,” Tetangco added.

For his part, BSP Deputy Governor Diwa Guinigundo said the Monetary Board also agreed to maintain its inflation forecast at 3.1 percent this year and at 3.4 percent next year despite the continued increase in oil prices in the world market.

“Basically there was no fundamental change in the forecast. We have the same outlook for both years,” Guinigundo pointed out.

Despite the soaring oil prices due to the tension in Iran, he explained that monetary authorities expect inflation to fall within the lower half of three-percent to five-percent target.