At the Monetary Board meeting on Thursday, September 26, the overnight reverse repurchase facility was cut to 4%. Accordingly, the overnight deposit and lending facilities interest rates were reduced to 3.5% and 4.5%, respectively.
The cuts will be effective on Friday, September 27.
This is the 3rd time the central bank has cut interest rates in 2019, amid the Philippine economy growing at a slower pace.
The Monetary Board’s decision is based on its assessment that price pressures have eased further since the previous meeting.
“Latest baseline forecasts of the BSP continue to indicate that inflation is likely to settle within the lower half of the target band of 3% +/- 1 percentage point for 2019 up to 2021,” the BSP said.
The central bank also noted that the balance of risks to the inflation outlook shifted toward the upside for 2020, while it is seen to tilt to the downside for 2021.
The volatility in oil prices due to geopolitical tensions in the Middle East and the potential impact of the African swine fever outbreak on food prices were cited as upside risks to inflation over the near term.
“Going forward, the BSP will continue to monitor emerging price and output developments to ensure that monetary policy settings remain consistent with price stability while being supportive of sustained non-inflationary economic growth over the medium term,” the central bank said.
Easing the interest rate creates a ripple effect across the economy. It generally means lower borrowing costs for consumers and would lead to people spending more. (READ: FAST FACTS: What does the Bangko Sentral ng Pilipinas do?)
More spending means higher demand for goods, which in turn boosts the economy over time. However, lowering interest rates may raise inflation, which is why the BSP times these moves accordingly. – Rappler.com