BSP continues easing policy rates with another 50bps cut

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to cut key interest rates by 50 basis points, widely unexpected by the market, citing the stable inflation outlook moving forward.

In a virtual briefing, BSP Governor Benjamin Diokno said effective Friday, June 26, rates will be at 2.25% for the overnight reverse repurchase (RRP) facility, the overnight deposit facility at 1.75%, and the overnight lending at 2.75%.

The move cuts policy rates to their lowest level in history, said Deputy Governor Francisco Dakila Jr.

To recall, the BSP already slashed rates by 50 basis points each in April and May.

"Latest baseline forecasts indicate that inflation could settle near the low end of the target range of 3.0 percent ± 1 percentage point inflation for 2020 up to 2022, with inflation expectations remaining firmly anchored over the policy horizon," Diokno said.

"Meanwhile, the balance of risks to the inflation outlook leans toward the downside from 2020 up to 2022 owing largely to the potential impact of a deeper and more disruptive pandemic on domestic and global demand conditions," elaborated Diokno.

Diokno said the Monetary Board now expects inflation to clock in at 2.3% this year from the earlier projection of 2.2%. It also revised its 2021 inflation forecast to 2.6% from 2.5%.

"The main factor that led to the revision of the forecast is the increase in global oil prices," explained Dakila.

"This was partly offset by the weakened economic growth both domestically and globally, as well as the continued stability of the peso," he elaborated.

Earlier on Thursday, the International Monetary Fund (IMF) said it expects the Philippine economy to shrink by 3.6% this year, a downgrade from the 0.6% growth it earlier projected. — BM, GMA News