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The Bangko Sentral ng Pilipinas (BSP) reduced the rate of the overnight reverse repurchase facility
Only two of the 11 economists polled by Reuters before Thursday’s policy review expected the BSP to cut rates by a quarter of a point. Most of them had predicted that the central bank would remain on hold while it assessed the impact of the earlier relaxation.
The BSP has now cut rates by a cumulative 200bps this year, moving to provide additional support to an economy that contracted more than expected in the third quarter as demand remained weak and public spending slowed.
He said that policy will remain accommodative in the coming months and that the timing of an exit from the unprecedented easing measures will depend on inflation and the pace of economic recovery.
“The silence of business and family confidence and the impact of recent natural calamities could represent strong headwinds for the recovery of the economy in the coming months,” said BSP Governor Benjamin Diokno.
The increase in coronavirus cases globally has also kept uncertainty high, he said.
Additionally, six cyclones have hit the Philippines in a span of just four weeks, including Vamco and Super Typhoon Goni, the most powerful in the world this year, causing massive flooding and damage to crops.
Despite further policy easing, inflation is not a concern for the central bank, and the latest forecasts indicate that expectations are firmly anchored within the 2% to 4% target band for 2020 through 2022 amid weak internal activity.
The BSP revised its inflation projections to 2.4% for this year, from 2.3% previously, and to 2.7% for next year, from 2.8%. Inflation in 2022 was projected at 2.9% compared to 3% previously.
(Reporting by Neil Jerome Morales, Enrico Dela Cruz, and Karen Lema; Edited by Jacqueline Wong and Kim Coghill)
By Neil Jerome Morales and Enrico Dela Cruz
