MB CUTS RATES AS RISKS REMAIN
The Monetary Board (MB), the policy making body of the Bangko Sentral ng Pilipinas, has reduced interest rates by 25 basis points as it flags a possible risks to the economy with the COVID-19's resurgence.
The MB decided to cut the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points to 2.0 percent, effective Friday, 20 November 2020.
The interest rates on the overnight deposit and lending facilities were likewise reduced to 1.5 percent and 2.5 percent, respectively.
The lowering of the interest rates is aimed at countering the possible effects of the contagion that has arisen with COVID-19 even with the perceived benign inflation environment.
Latest baseline forecasts continue to indicate a benign inflation environment over the policy horizon, with inflation expectations remaining firmly anchored within the target range of 2-4 percent.
Average inflation is seen to settle within the lower half of the target band for 2020 up to 2022, reflecting slower domestic economic activity, lower global crude oil prices, and the recent appreciation of the peso. The balance of risks to the inflation outlook also remains tilted toward the downside owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic.
Meanwhile, uncertainty remains elevated amid the resurgence of COVID-19 cases globally. However, the Monetary Board also observed that global economic prospects have moderated in recent weeks.
At the same time, the Monetary Board noted that while domestic output contracted at a slower pace in the third quarter of 2020, muted business and household sentiment and the impact of recent natural calamities could pose strong headwinds to the recovery of the economy in the coming months.
Given these considerations, the Monetary Board assessed that there remains a critical need for continuing policy support measures to bolster economic activity and boost market confidence. With a benign inflation environment and stable inflation expectations, the Monetary Board sees enough policy space for a reduction in the policy rate at this time to uplift market sentiment and nurture the country’s economic recovery amid increased downside risks to growth.
Looking ahead, the BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth.