MANILA -- Philippine monetary officials on Thursday reduced by 25 basis points the Bangko Sentral ng Pilipinas’ (BSP) key rates, the third for the year, as domestic fundamentals remain strong and are expected to cushion the impact of negative external developments.
The decision of the policy-making Monetary Board (MB) came after similar rate cuts last May and August.
In a briefing, BSP Governor Benjamin Diokno, who chairs the MB, said their decision was made after noting that “price pressures have eased further since the previous meeting.”
Diokno said inflation is still projected to settle within the lower half of the government’s 2 percent to 4 percent target band until 2021.
“Inflation expectations also remain well-anchored within the inflation target range based on the BSP’s survey of private sector economists,” he said.
The central bank chief also noted the fragile global growth prospects, given the trade issues.
He, however, said that the impact of the external developments is seen to be countered by the solid domestic spending and continued policy reforms.
“Given these considerations, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rates to support economic growth and reinforce market confidence,” he said.
“Going forward, the BSP will continue to monitor emerging price and output developments to ensure that monetary policy settings remain consistent with price stability while being supportive of sustained non-inflationary economic growth over the medium term,” he added.
The MB slashed the 2019 average inflation forecast to 2.5 percent from 2.6 percent last August but kept the 2.9 percent projections for 2020 and 2021.
BSP Assistant Governor Edna Villa, who heads the International Monetary Affairs and Surveillance Sub-Sector, said they forecast sustained deceleration of rate of price increases to “reach the lower-end of the target range until November 2019 due primarily to base effects as oil and rice prices peaked at the same period in 2018.”
“For 2020 and 2021, the baseline forecasts reflect the expected recovery in domestic economic growth and positive base effects as the impact of rice tariffication tapers off,” she said during the same briefing.
Villa said upside risks to inflation include petitions for power rates, transport fare adjustments, proposed increase in the excise taxes of alcoholic beverages, impact of the African swine fever on meat prices, and higher global prices.
She added the downside risk is weak global growth due to trade geopolitical issues.
Villa, meanwhile, declined to say whether the latest cut in the BSP rates will be the last for the year.
“We always look at evolving developments and we never pre-commit to a particular policy response or policy action. As the governor has always said, we will remain data-dependent,” she added. (PNA)
