BSP keeps benchmark rate at 4% in last policy meeting of 2019

While the Bangko Sentral ng Pilipinas (BSP) decided to keep policy rates unchanged on Thursday, its last policy meeting for 2019, the cost of the money in the country is actually lower after a total of 75 basis points in interest rate cuts earlier this year.

The central bank’s policy-setting board kept rates at current settings with the overnight borrowing rate at 4.00%, the overnight lending at 4.50%, and the overnight deposit rate at 3.50%.

"The Monetary Board’s decision is based on its assessment of a benign inflation environment,” BSP Governor Benjamin Diokno said in a press conference in Manila City.

Thursday’s policy meeting is the last for the year. The next meeting is scheduled in January next year.

The Monetary Board kept its inflation outlook at 2.4% for 2019, and 2.9% for both 2020 and 2021, unchanged from the previous meeting in November.

“The balance of risks to the inflation outlook continues to lean slightly toward the upside in 2020 and toward the downside in 2021,” Diokno said.

“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,” he added.

The Department of Agriculture (DA) confirmed outbreaks of the African Swine Fever in the country last September, and has ordered that selected areas be placed under quarantine to prevent the disease form further spreading.

“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,” Diokno added.

The board has reduced benchmark interest rates by a total of 75 basis points this year: 25 basis points each during its May 9, August 8, and September 26 meetings.

A 75-basis-point reduction in interest rates has resulted in lower financing cost, said Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC).

“Lower interest rates, largely at two-year lows recently, fundamentally supported by inflation rate at 3.5-year lows have sharply reduced the borrowing and financing costs of consumers, businesses, government, and other institutions, thereby effectively increasing disposable incomes and spending power,” he said in a text message.

“Sharp decline in both interest and inflation rates has also reduced the borrowing and financing costs of businesses and listed companies, thereby leading to lower interest rate costs, higher net incomes, and higher valuations,” Rica fort noted.

In a separate commentary, Security Bank chief economist Robert Dan Roces noted the central bank move is a prudent decision. It gives the market forces more time to evaluate how the market actually absorbed the policy rate cuts earlier this 2019.

“The MB’s pause decision in its final meeting for the year is prudent to allow it to evaluate the transmission of the 2019 cuts,” he said in an emailed statement.

“As monetary policy operates on a lag, the pause lets the central bank observe the appropriateness of the total 75 bps reduction for the year relative to the inflation path as it unwinds rate hikes from last year,” Roces added. —VDS, GMA News