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MANILA, Philippines – In a move few had anticipated, on Thursday (Nov. 19) the central bank cut its key interest rate by a quarter of a percentage point, pushing yields into deeper negative territory and said the The Philippine economy needed more support and consumers more confidence after tepid growth in the third quarter.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the prevailing low-rate inflation regime also gave regulators enough room to free up more liquidity in the financial system, in the hope that this will speed up spending. .
“Average inflation is considered to be within the lower half of the target band for 2020 through 2022, reflecting slower domestic economic activity, lower crude prices and the recent appreciation of the peso,” Diokno said in a online conference.
“The balance of risks to the inflation outlook also remains sloping downward due in large part to potential disruptions to national and global economic activity amid the ongoing pandemic,” added Diokno.
The Monetary Board’s decision to cut the interest rate on the BSP overnight reverse repurchase facility by 25 basis points brought the key rate, on which banks based lending rates, to 2 percent effective Friday. (November 20).
Interest rates on demand deposits were reduced to 1.5 percent and credit facilities to 2.5 percent.
Diokno said that uncertainty “remains elevated” amid the resurgence of COVID-19 cases globally, and the Monetary Board saw the global economic outlook have “moderated” in recent weeks.
At the same time, the Monetary Board noted that, although domestic production contracted at a slower pace in the third quarter of 2020, the moderation in business and family confidence and the impact of recent natural calamities could generate strong winds in against the economic recovery in the coming months.
“Given these considerations, the Monetary Board assessed that there remains a critical need for continued policy support measures to boost economic activity and increase market confidence,” Diokno said.
“With a benign inflation environment and stable inflation expectations, the Monetary Board sees enough policy room for a reduction in the policy rate at this juncture to raise market sentiment and nurture the country’s economic recovery amid increased risks. down for growth, “he explained.
ING Bank Manila senior economist Nicholas Mapa described the central bank’s move as “an attempt to resuscitate the decline in bank loans and combat the economic recession.”
Mapa said that while real policy rates are now deep in negative territory, -0.5 percent, the BSP’s “new round of rate cuts” came when fourth-quarter gross domestic product was “expected to worsen” from the 11.5 percent contraction in the third quarter.
Mapa said that despite the new round of rate easing, “he was not sure that bank loans would pick up anytime soon due to increasingly weak growth prospects with high unemployment and still negative consumer confidence.”
He also noted that the lack of fiscal stimulus could likely delay a strong rebound in growth, which, in turn, will keep the appetite for investment and bank lending quiet in the short term.
TSB
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