MANILA – Philippine monetary officials on Thursday slashed by 50 basis points the central bank’s key policy rates, echoing aggressive policy actions by other central banks aimed at supporting economic growth from threats of health pandemic and trade issues.
In a message sent to journalists Thursday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the overnight reverse repurchase (RRP) facility rate will be 3.25 percent, the overnight deposit facility rate at 2.75 percent, and the overnight lending facility rate at 3.75 percent effective March 20.
The latest rate cut brought the total rate reduction this year to 75 basis points after the 25-basis-point cut during the rate setting meet last February 6.
Aside from the policy rate cuts, Diokno said the Board also “authorized the time-bound, temporary relaxation of BSP regulations on compliance reporting by banks, calculations of penalties on required reserves, and single borrower limits.”
He added the Board also approved a temporary reduction in the term spread on rediscounting loans relative to the overnight lending rate to zero.
In a statement, the central bank said latest inflation projections continue to show a within-target inflation rate, referring to the government’s 2-4 percent target band.
The Board forecasts average inflation this year to be at 2.2 percent, lower than the 3 percent projection announced last February; while the 2021 forecast is 2.4 percent, also lower compared to the 2.9-percent projection previously.
It attributed the drop in average inflation rate projections for this and next year to lower-than-projected inflation outturns in recent months, a sharp decline in global crude oil prices, and the adverse effects of the 2019 novel coronavirus disease (Covid-19) on global and domestic economic activity.
The BSP said the balance of risk on domestic rate of prices increases “now leans toward the downside” until next year since “uncertainty over the potentially protracted pandemic poses significant downside risks to aggregate demand.”
“The Monetary Board noted that while the enforcement of quarantine measures could help in slowing the spread of the virus, the resulting disruptions to industries and private spending are likely to reduce economic growth in the near term. Moreover, Covid-19 has likewise dampened prospects for the global economy, which could negatively impact tourism and trade, overseas Filipino remittances, and foreign investments,” it said.
Malacañang placed Luzon under an enhanced community quarantine from March 17 until April 12 to limit people’s movements following the suspension of classes in all levels and work, with some exemptions, and prevent further spread of coronavirus disease2019 (Covid-19)
With the projection of lower inflation rate and the need to help lift domestic growth, the central bank said the Board decided to slash the central bank key rates since it “sees enough policy space for an assertive reduction in the policy rate at this juncture to cushion the country’s growth momentum and uplift market confidence amid stronger headwinds.”
“The monetary policy easing is also aimed at mitigating the risk of financial sector volatility in light of unfolding global developments by ensuring adequate domestic liquidity and credit in the financial system, as well as lowering borrowing costs for affected firms and households,” it said.
The statement also echoed the BSP’s stance that supports the urgent and carefully coordinated measures with other government agencies to alleviate the spillover effects of the pandemic on people and firms, and prevent any long-lasting economic and social damage.
“Going forward, the BSP will remain data-driven as it considers a range of other supplementary measures that may be required to support non-inflationary and sustainable growth over the medium term,” it said.
These supplemental actions may include recalibrating the interest rate corridor settings, reducing the reserve requirement ratios, suspending the term deposit facility (TDF) auctions, and ensuring access to liquidity-enhancing facilities such as the rediscounting windows, it said.
“The BSP is prepared to use its full range of monetary instruments and to deploy regulatory relief measures as needed in fulfillment of its price and financial stability mandates,” it added. (PNA)
