BSP cuts policy rate by 25 basis points

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Bangko Sentral Ng Pilipinas (BSP) decided Thursday to cut the interest rate in its overnight reverse repurchase facility by 26 basis points to 2.0 percent, effective Friday, November 20.

During the monetary policy meeting yesterday, November 19, the Monetary Board resolved the interest rate on the overnight deposit and lending facilities were likewise reduced to 1.5 percent and 2.5 percent, respectively.

The latest baseline forecasts indicate a benign inflation environment over the policy horizon, with inflation expectations remaining anchored firmly within the target range of 2-4 percent.

“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,” BSP stated.

BSP further added that the balance of risks to the inflation outlook also remains tilted toward the downside, owing mainly to potential disruptions to domestic and global economic activity amid the ongoing pandemic. Meanwhile, uncertainty remains elevated amid the resurgence of COVID-19 cases globally.

However, the Monetary Board also observed that global economic prospects have moderated in recent weeks. Simultaneously noting that while domestic output contracted at a slower pace in the third quarter of 2020, muted business and household sentiment and the impact of recent natural calamities could pose strong headwinds to the recovery of the economy in coming months.

Given these considerations, the Monetary Board assessed a critical need for continuing policy support measures to bolster economic activity and boost market confidence. 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 time to uplift market sentiment and nurture the country’s economic recovery amid increased downside risks to growth.

Looking ahead, the BSP stands ready to deploy its full arsenal of instruments as needed in fulfilment of its mandate to maintain price and financial stability conducive to sustainable economic growth.

(Press Release)

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