MANILA, Philippines - The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) yesterday cut policy rates by 25 basis points for the second time this year following what BSP considers a comfortable, and well-anchored inflation expectations.
As a result, the BSP's benchmark overnight borrowing rate goes down to 4.0% from 4.25%, while the lending rate is now 6.0% from 6.25%.
In a statement read by BSP Deputy Governor Diwa C. Guinigundo, the Monetary Board has noted that risks to inflation has remained "broadly balanced" with the "subdued pace" of global economic growth moderating inflationary spikes to prices but while inflation outlook looks stable and within the 3-5 percent long-term for this year and 2013, the upside risks such as oil price volatility and a surge in capital flows remains.
The central bank likewise took note of domestic demand which has "continued to grow at a modest pace, reflecting mainly the impact of weaker external demand."
"Global economic conditions are expected to stay subdued as fiscal and banking sector headwinds in advanced economies affect global output growth and as market confidence remains fragile. Given these considerations, the Monetary Board is of the view that the benign inflation outlook has allowed further scope for a measured reduction in policy rates to support economic activity and reinforce confidence," read Guinigundo.
The BSP's key policy interest rates have been reduced by 50 basis points since January this year, which brought the rates of overnight borrowing or reverse repurchase or RRP facility to four percent and six percent for the overnight lending or repurchase or RP facility. The rates were also reduced on term RRPs, RPs, and special deposit accounts.
HSBC's economists said this latest rates' cut could be the last one this year since even with oil prices volatility, inflation will likely keep within the 3-5 percent target.
The reduction in key rates will also support local spending, said the bank's research sector.
"Fortunately, inflation is expected to remain within target, even with concerns over rising oil prices (and even) with energy hikes, inflation is expected to remain within the target, as electricity, gas and other fuels make up only 7.01 percent of the CPI basket and price hikes are unlikely to increase significantly enough to push inflation over the target," said HSBC.
"While upside risks to inflation remain - ample liquidity and potential supply shocks from natural disasters - they should not be strong enough to push price increases above the inflation target in the next six months," the bank added.