BSP delivers surprise 25bps rate cut to new record lows

Following the policy meeting on Thursday afternoon, BSP Governor Benjamin Diokno announced key policy rates will be cut effective Friday, November 20, 2020 — the overnight reverse repurchase (RRP) facility at 2%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5%.

"Average inflation is seen to settle within the lower half of the target band for 2020 up to 2022, reflecting slower domestic economic activity, lower global crude oil prices, and the recent appreciation of the peso. The balance of risks to the inflation outlook also remains tilted toward the downside owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic," he said in a virtual briefing.

"With a benign inflation environment and stable inflation expectations, the Monetary Board sees enough policy space for a reduction in the policy rate at this juncture to uplift market sentiment and nurture the country’s economic recovery amid increased downside risks to growth," he added.

The adjustments came even as the BSP now expects inflation to clock in at 2.4% this year, faster than the 2.3% it projected during the previous monetary policy meeting in October, citing faster-than-expected figures that came in in September, as well as higher food inflation brought about by the African swine fever.

In the coming years, the central bank now sees inflation at a slower pace  -- 2.7% in 2021 versus the previous forecast of 2.8% and at 2.9% in 2022 from 3.0% previously.

"These are now lower because of again the impact of the slower domestic economic activity in particular in the third quarter the outturn was lower than what many analysts had expected and likewise from lower global crude oil prices and appreciation of the peso," BSP deputy governor Francisco Dakila Jr. said in the same briefing.

Prior to Thursday's cut, the BSP earlier reduced key interest rates by a total of 175 basis points this year -- 25 basis points in February, and 50 basis points each in March, April, and June.—LDF, GMA News