The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, on Thursday reduced the overnight borrowing rate by 25 basis points to a record-low 2 percent as support measure to boost the economy amid the lingering global health crisis.
The new cut brought the total reduction in policy rates this year to 200 basis points.
BSP Governor Benjamin Diokno, who is also the board chairman, said in an online briefing the rate cut would be effective on Nov. 20. The interest rates on the overnight deposit and lending facilities were also reduced to 1.5 percent and 2.5 percent, respectively.
"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 to 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," Diokno said.
He said the balance of risks to the inflation outlook also remained tilted toward the downside, owing to potential disruptions to domestic and global economic activity amid the 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," he said.
Diokno said the Monetary Board noted that while domestic output contracted at a slower pace in the third quarter by 11.5 percent from the deeper 16.9-percent decline in the second quarter, 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 juncture to uplift market sentiment and nurture the country’s economic recovery amid increased downside risks to growth," Diokno said.
Diokno said the BSP was ready to deploy its full arsenal of instruments as needed to fulfill its mandate to maintain price and financial stability conducive to sustainable economic growth.
Deputy Governor Francisco Dakila said the inflation forecasts for 2020, 2021 and 2022 were all revised. For this year, inflation is seen to settle at 2.4 percent from the estimate of 2.3 percent made during the Oct. 1 meeting.
For next year, inflation forecast was lowered to 2.7 percent from 2.8 percent. For 2022, inflation forecast was also adjusted to 2.9 percent from the previous 3-percent estimate.
Dakila said that in revising upward the forecast in 2020, the board considered the uptick in inflation in September and October this year. The lower forecasts for 2021 and 2022 stemmed from the impact of slower domestic economic activity, particularly the 11.5-percent contraction in the third quarter. Other factors considered were the lower global oil prices and stronger peso versus the greenback.
"The 25-bps cut in policy rate will shore up market sentiment," Dakila said, adding that the BSP would continue to be data dependent in future decisions.