Bangko Sentral delivers surprise interest rate cut vs pandemic

Ralf Rivas
Bangko Sentral delivers surprise interest rate cut vs pandemic
An expert says this may be the last interest rate cut for 2020

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) Monetary Board decided on Thursday, June 25, to cut interest rates by 50 basis points to support the economy amid the coronavirus pandemic.

BSP Governor Benjamin Diokno said the overnight reverse repurchase facility will be at 2.25%, a new all-time low, effective Friday, June 26.

Interest rates on the overnight deposit and lending facilities were reduced to 1.75% and 2.75%, respectively.

Since February, the central bank has brought down interest rates by 1.75%.

The Monetary Board trimmed key interest rates amid low inflation, which is expected to settle at 2.3% in 2020 and 2.6% in 2021.

“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,” the BSP said.

Diokno added that while economies are reopening worldwide, recovery would likely be “protracted and uneven.”

“Hence, there remains a critical need for continuing measures to bolster economic activity and support financial conditions, especially the effective implementation of interventions to protect human health, boost agricultural productivity, and build infrastructure,” he said.

ING Bank Manila senior economist Nicholas Mapa expects this to be the last interest rate cut for 2020.

“Diokno will also likely hold back on reducing reserve requirements in the near term given that the financial system is swamped with liquidity with excess funds parked at BSP’s deposit facilities hitting roughly P1.3 trillion in June,” Mapa added.

He also said the rate cut will likely “sap some appreciation pressure for the peso in the near term,” as the currency “enjoyed relative strength in recent weeks buoyed by financial account inflows tied to the government’s foreign borrowings.” – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.