Philippine central bank pauses rate cuts on benign inflation

The Philippine central bank on Thursday held interest rates steady at its last monetary policy meeting for the year due to a positive domestic growth outlook and within-target inflation.

The Monetary Board of Bangko Sentral ng Pilipinas (BSP) maintained the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 4 percent. BSP kept the interest rates on the overnight and lending facilities unchanged at 3.5 percent and 4.5 percent, respectively.

“The Monetary Board’s decision is based on its assessment of a benign inflation environment,” said BSP Governor Benjamin E. Diokno.

“Notwithstanding the weak global growth outlook, prospects for the Philippine economy continue to be robust on the back of firm domestic demand. Sustained policy support from increased fiscal spending, as well as improved domestic liquidity conditions owing to recent monetary adjustments, is also expected to support growth in the coming months,” Diokno added.

BSP’s Monetary Board also kept all inflation estimates made during the November policy meeting.

For this year, BSP officials announced at the post-monetary meeting press briefing that inflation would likely average 2.4 percent.

For both 2020 and 2021, BSP projects inflation at 2.9 percent.

Diokno said the balance of risks to the inflation outlook continue to lean slightly toward the upside in 2020 and toward the downside in 2021.

“Upside risks to inflation over the near term emanate mainly from potential volatility in international oil prices amid geopolitical tensions in the Middle East as well as from the potential impact of the African swine fever outbreak and recent weather disturbances on domestic food prices,” Diokno said.

“However, uncertainty over trade policies in major economies continue to weigh down on global economic activity and demand and could thus mitigate upward pressures on commodity prices,” he added.

With two back-to-back pauses in monetary policy easing, economists foresee that the BSP will resume cutting rates by next year since they expect GDP growth to undershoot or cling to the lower end of the Philippine government’s target range.

ING Bank Manila economist Nicholas Mapa predicts that the BSP will cut its policy rate by 25 basis points as early as the February 2020 meeting and ease by 50 basis points next year.

Meanwhile, JPMorgan economist Nur Raisah Rasid maintains the policy call for a 25 basis point easing for the first quarter of 2020.

BSP has scheduled the next policy meeting of the Monetary Board for February 6, 2020.


Bangko Sentral ng Pilipinas (BSP) complex in Manila. Picture credit: Ramon FVelasquez from Wikimedia Commons