BSP resumes cut in rates as GDP underperforms

The Bangko Sentral ng Pilipinas (BSP) slashed interest rates by 25 basis points yesterday as part of monetary loosening on the back of easing inflation and disappointing economic figures.

BSP Governor Benjamin Diokno said in a press conference that the Monetary Board decided to cut the overnight reverse repurchase rate to 4.25 percent.

But the interest rates on the overnight deposit and lending facilities were kept at 3.75 percent and 4.75 percent, respectively.

Diokno, who earlier telegraphed a 50-basis point cut until the end of the year, said price pressures have continued to ease since the last rate setting meeting of the Monetary Board wherein the body decided to hit the pause button to assess the impact of previous monetary actions.

Inflation eased to a 31-month low of 2.4 percent in July from 2.7 percent in June, bringing the average in the first seven months to 3.2 percent.

“Inflation expectations have also moderated further to levels consistent with the inflation target based on the BSP’s survey of private sector economists. Moreover, the 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.

The BSP chief said weaker global economic prospects continue to temper the inflation outlook.

“The potential adverse effects of a prolonged El Niño episode to inflation have subsided,” he said.

Furthermore, Diokno said the Monetary Board noted that prospects for global economic activity are likely to remain weak amid sustained trade tensions among major economies particularly the US and China.

In the domestic front, he said authorities remain optimistic of a firm gross domestic product (GDP) growth for the remainder of the year with the government’s catch up plan after the delayed passage of the 2019 national budget.

“Domestically, the outlook for growth continues to be firm on the back of a projected recovery in household spending and the accelerated implementation of the government’s infrastructure spending program, after the delay in expenditures due to the legislative impasse in the approval of the budget in January to April 2019,” he said.

According to Diokno, easing inflation continued to provide more room for further monetary easing to boost the country’s economic growth.

The government yesterday reported the country’s GDP growth slowed to 5.5 percent in the second quarter, its slowest pace in 17 quarters, from 5.6 percent in the first quarter due to the budget impasse.

“On balance, therefore, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate as a pre-emptive move against the risks associated with weakening global growth,” he said.