Monetary Board trims interest rates by 25 bps

Credit to Author: ANGELICA BALLESTEROS, TMT| Date: Thu, 09 May 2019 16:25:40 +0000

MONETARY authorities on Thursday slashed interest rates by 25 basis points (bps) — the first time since a series of rate hikes last year — on expectations that inflation would remain manageable.

During a briefing at the Bangko Sentral ng Pilipinas (BSP) headquarters in Manila, the central bank’s Monetary Board reduced overnight borrowing, lending and deposit rates to 4.5 percent, 5 percent and 4 percent, respectively.

In a speech, BSP Governor Benjamin Diokno said the board’s decision to cut rates were “based on its assessment that the inflation outlook continues to be manageable, with easing price pressures owing to the decline in food prices amid improved supply conditions.”

According to him, the policymaking body considered the impact of the 2019 national budget impasse on near-term economic activity, but took the view that prospects for domestic demand remained firm, to be supported by a projected recovery in household spending and the continued implementation of the government’s infrastructure program.

The latest baseline forecast, he said, indicated that inflation would settle within the 2.0-to-4.0 percent target range for 2019 and 2020.

BSP Deputy Governor Diwa Guinigundo said the board also trimmed its inflation forecast to 2.9 percent from 3 percent for this year, but raised it to 3.1 percent from 3 percent for 2020.
Factors for the 2019 downgrade were the lower monthly inflation rate and the gross domestic product (GDP) in the first quarter.

Prior to the Monetary Board meeting, the Philippine Statistics Authority announced that the country’s economic growth in January to March slowed to a four-year low of 5.6 percent, compared with 6.5 percent in the first quarter of 2018 and 6.3 percent in the last three months of 2018.

Guinigundo also cited lower domestic liquidity growth and world GDP, as well as the decrease in Meralco rates in May, as considerations for the revised forecast.

Factors considered for the higher 2020 outlook were the increase in Dubai crude oil prices and the latest adjustment in jeepney fares.

“[R]isks to the inflation outlook remain broadly balanced for 2019 amid risks of a prolonged El Niño episode and higher-than-expected increases in global oil prices,” Diokno said.

“For 2020, the risks continue to lean toward the downside as weaker global economic activity could temper commodity price pressures,” he added.

Further loosening seen

In an e-mailed comment, Capital Economics Emerging Asia Economist Alex Holmes said he expected more rate cuts this year.

“[The] reason we expect more cuts is that growth is likely to continue to underwhelm. GDP figures released today (Thursday) show that growth dropped to a four-year low in [the first quarter], undershooting expectations,” Holmes explained.

“While some of this was due to temporary factors, we still think growth this year will be weaker than last year’s 6.2 percent,” he said.

Holmes also said exports were likely to struggle due to slowing global growth, and that the lagged impact of last year’s rate hikes would continue to weigh on activity.

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