BSP trims interest rates anew on easing inflation

AS widely expected, monetary authorities on Thursday cut interest rates for the third time this year on the back of lower price pressures.

The Bangko Sentral ng Pilipinas’ (BSP) overnight borrowing, lending and deposit rates were reduced by another 25 basis points to 4.00 percent, 4.50 percent and 3.50 percent, respectively, after the Monetary Board held its sixth policy meeting for 2019.

“The Monetary Board’s decision is based on its assessment that price pressures have eased further since the previous meeting,” BSP Governor Benjamin Diokno said at a briefing.

According to him, baseline forecasts of the BSP continue to indicate that inflation is likely to settle within the lower half of the target band of 2 to 4 percent for 2019 up to 2021.

“Inflation expectations also remain well-anchored within the inflation target range, based on the BSP’s survey of private sector economists,” the Bangko Sentral chief said.

BSP Assistant Governor Edna Villa also announced that monetary authorities also cut their 2019 inflation forecast to 2.5 percent from 2.6 percent, while 2020 and 2021 projections were both kept at 2.9 percent.

“In the near term, inflation will continue to decelerate and 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,” she explained.

For 2020 and 2021, Villa said, the baseline forecasts reflect the expected recovery in domestic economic growth and positive base effects as the impact of rice tariffication tapers off.

Diokno said the volatility in oil prices on account of geopolitical tensions in the Middle East and from the potential impact of the African swine fever outbreak on food prices were the upside risks to inflation over the near term.

The subdued pace of global economic activity, on the other hand, continues to temper the inflation outlook, he added.

“At the same time, the Monetary Board believes that prospects for global economic growth are likely to remain weak owing mainly to uncertainty over trade policies.

“Firm domestic spending and progress on policy reforms will serve as a buffer against global headwinds.”