The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on Thursday cut the benchmark interest rates by 25 basis points to 4 percent effective Sept. 27, taking into account the deceleration in consumer prices.
The interest rates on the overnight deposit and lending facilities were likewise cut to 3.5 percent and 4.5 percent, respectively.
BSP Governor Benjamin Diokno said price pressures had eased further since the previous meeting. Latest baseline forecasts of the BSP indicate that inflation is likely to settle within the lower half of the target range of 2-4 percent from 2019 to 2021.
“Inflation expectations also remain well anchored within the inflation target range based on BSP’s survey of private sector economists,” Diokno said.
He also said the board noted that the balance of risks to inflation outlook had shifted toward the upside for 2020, while it was seen to tilt to the downside in 2021.
He said upside risks to inflation over the near term emanated mainly from volatility in oil prices due to geopolitical tensions in the Middle East and the potential impact of the African swine fever outbreak on food prices.
Diokno said the prospects for global economic growth were likely to remain weak owing mainly to uncertainty over trade policies.
The board reduced the inflation forecast this year to 2.5 percent from the previous estimate of 2.6 percent made in the Aug. 8 meeting. But the forecasts for 2020 and 2021 were kept steady at 2.9 percent.
Edna Villa, sector in charge of the BSP’s Monetary and Economic Sector, said monetary authorities would continue to closely monitor domestic and global developments as pertinent factors in deciding whether to further tweak the policy stance.
DBS Bank of Singapore expected the rate cut, saying policy mix was needed to achieve the government’s full year growth target of 6-7 percent.
“… We see room for further easing especially if growth fails to pick up…,” DBS said.
The inflation rate in August further slowed to a 35-month low of 1.7 percent from 2.4 percent a month ago, prompting economists to believe that monetary authorities would further reduce the policy interest rates.
The Philippine Statistics Authority said the slowdown was due to slower increases in the prices of food and non-alcoholic beverages. The August print was the slowest since the 1.7 percent in September 2016. It was also significantly slower than 6.4 percent in August last year.
The figure brought the average inflation in the first eight months to 3.1 percent, well within the target range of 2 percent to 4 percent earlier set by the government for 2019.
The economy in the second quarter slowed to a four-year low of 5.5 percent from 5.6 percent a quarter ago and 6.2 percent a year ago, weighed down by the El Nino dry spell, rising protectionism in advanced economies, delay in the approval of the national budget for 2019 and the ban on construction activities in the run-up to the midterm elections in May.
