Philippine central bank slashes policy rate again by 50bp

It has already reduced the rate by a total of 125bp.

In a surprise move, the Bangko Sentral ng Pilipinas (BSP) has reduced the interest rate on its overnight reverse repurchase (RRP) facility by another 50bp to 2.25%, according to a news release.

The interest rates on the overnight deposit and lending facilities were cut to 1.75% and 2.75% respectively.

The central bank’s latest forecasts reveal that inflation could settle near the low end of the target range of 3% ± 1pp for 2020 until 2022. The balance of risks to the inflation outlook is also expected to be lower for this year until 2022.

BSP explained that a policy rate reduction amidst a benign environment could alleviate the downside risks to growth and boost market confidence. It has already reduced its policy rate by a total of 125bp from February to April.

In a separate report, HSBC Global Research economist Noelan Arbis believes that the policy rate may remain steady throughout Q3 as the BSP will likely assess the full impact of the rate cut on the economy. However, the sluggish recovery in H2 may force the BSP to cut the rate again by 24bp come Q4.

HSBC expects an additional 200bp cut in the RRR in H2 as a way to push domestic liquidity due to heightened bank lending and government borrowing on the back of any potential stimulus, he concluded.