FOR the first time this year, the Monetary Board (MB) decided to take a breather from cutting interest rates to pump the local economy in four consecutive rate cuts for the first eight months of 2020.
The Bangko Sentral ng Pilipinas (BSP) kept its main monetary policy rate unchanged on Thursday at 2.25 percent. Interest rates on the overnight deposit and lending facilities were likewise kept at 1.75 percent and 2.75 percent, respectively.
The decision was based primarily on the MB’s assessment of a benign inflation in the economy, and that a “prudent pause” is deemed necessary for the time being.
“The Monetary Board is of the view that monetary policy settings remain appropriate for the time being. A prudent pause will enable the cumulative 175-basis-point reduction in the policy rate, as well as other monetary and regulatory relief measures by the BSP, to fully work their way through the economy, even as the national government continues to implement interventions to bolster economic activity and protect human lives and livelihoods,” the BSP said.
Inflation
The board, meanwhile, raised inflation projections for 2020, 2021 and 2022.
For this year, it now expects inflation to hit 2.6 percent from the earlier projection of 2.3 percent. For next year, inflation is seen to hit 3 percent from the earlier forecast of 2.6 percent. For 2022, meanwhile, inflation projection was raised to 3.1 percent from 3 percent in earlier forecasts.
“While latest baseline forecasts have risen slightly due to the higher-than-expected inflation in July and recent increases in global crude oil prices, the future inflation path remains firmly within the government’s 2-percent to 4-percent target. The balance of risks to the inflation outlook also leans toward the downside from 2020 until 2022 owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic. Meanwhile, inflation expectations remain broadly consistent with the inflation target,” the BSP said.
As for economic growth, the BSP assessed that both the local and global economies will remain subdued and uncertain amid a resurgence in Covid-19 cases. Amid this, the BSP assured that the local economy still has “ample liquidity” in its financial system.
“Going forward, the BSP remains committed to deploying its full range of instruments as needed in fulfillment of its mandate to promote non-inflationary and sustainable growth over the medium term,” the BSP said.
The BSP has been aggressive in pumping the economy with stimulus to keep it running amid disruptions caused by the global pandemic. Aside from easing regulatory restrictions, releasing billions in liquidity into the cash stream via the reserve requirement ratio (RRR) cuts and remittances to the national government, the BSP has cut its rates four times in the last eight months.
In February, at its first meeting of the year, it cut its rates by 25 basis points as the threat of Covid-19 emerges in other countries. In March, just days after the first implementation of community quarantine in Luzon, the BSP cut its interest rates by 50 basis points.
This was supplemented by another 50-basis-point cut in an off-schedule MB meeting in April, and another 50-basis-point cut in June.
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