The Bangko Sentral ng Pilipinas on Thursday reduced the benchmark interest rate by another 50 basis points to 2.75 percent to support the economy amid the threat posed by the onslaught of the coronavirus disease 2019 pandemic.
BSP Governor Benjamin Diokno, in a viber message to reporters, said the new interest rates would become effective on April 17. The deposit and lending rates were also cut to 2.25 percent and 3.25 percent, respectively.
The latest move by the Monetary Board was the second time in nearly a month that the benchmark interest rates were slashed by 50 bps.
Data showed that it was the first time in more than 11 years that the benchmark interest rates were reduced by a total of 100 bps in two successive meetings. The first happened on Dec. 18, 2008 during the global financial crisis.
“Each of the rate cuts this year were designed to make borrowing money cheaper, to ensure the public and private sector will have no problem financing the fight to contain COVID-19, as well as all other basic needs during the health crisis,” the BSP said in a statement.
ING Bank Manila senior economist Nicholas Mapa said the latest rate cut was carried out ahead of the May 24 meeting as the national government extended a lockdown of the main island of Luzon until April 30.
“Market reaction to the move was muted given that Diokno had heavily hinted at implementing a ‘deeper rate cut’ at an off-cycle meeting,” Mapa said.
“We expect Diokno to continue to ease monetary policy, reducing RR [reserve requirement] by another 200 bps before the end of April and cutting policy rates by another 25 bps by May. Investors will continue to monitor the size and scope of the fiscal COVID-19 recovery plan now that the lockdown has been extended to the end of the month with government officials flagging a worst case scenario technical recession by the third quarter of the year,” Mapa said.
The Monetary Board earlier said inflation would continue to be benign and could settle close to the low-end of the target range of 2 to 4 percent this year and in 2021, citing the COVID-19 pandemic affecting both global and domestic growth.
The board, in the highlights of the monetary policy stance meeting on March 19 and released Thursday, said inflation was projected to average 2.2 percent for 2020 and 2.4 percent for 2021, lower than the previous forecasts of 3.0 percent for 2020 and 2.9 percent for 2021.
“The downward adjustment in the inflation forecasts could be attributed to the lower-than-projected inflation in February 2020, the sharp decline in global crude oil prices, and the impact of COVID-19 on global and domestic growth,” it said.
“The risks to the inflation outlook are tilted to the downside for 2020 and 2021. The potential impact of a more disruptive COVID-19 pandemic on global growth along with continued volatility in crude oil prices due to the price war between Saudi Arabia and Russia are the main downside risks to inflation,” it said.
Meanwhile, it said adjustments in utility rates, higher global rice prices and the impact of African Swine Fever on meat prices were the main upside risks to inflation.
The uncertainty over trade and economic policies in major economies continue to weigh down on global demand, thus mitigating upward pressures on commodity prices.
Inflation in March decelerated to 2.5 percent from 2.6 percent in February, pushed down by slower increments in the indices of alcoholic beverages and tobacco, utilities and fuels. This brought the average inflation in the first quarter to 2.6 percent, below the midpoint of the target range of 2 percent to 4 percent.
The board said that while the enforcement of quarantine measures in Luzon could help in slowing the spread of the virus, the resulting disruptions to industries and private spending were likely to reduce economic growth in the near term.
The BSP aso reduced the reserve requirement ratios of universal and commercial banks by 200 basis points to 12 percent in an attempt to boost domestic liquidity.
The 200-bps cut in RRR translates to around P180 billion to P200 billion in additional liquidity to the financial system.
Diokno said earlier he was aiming to cut the level of RRR to a single digit at the end of his term.