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Bangko Sentral slashes benchmark interest rate as growth slows

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ABS-CBN News

MANILA (UPDATE) -- The Bangko Sentral ng Pilipinas on Thursday cut the benchmark interest rate by 25 basis points, signaling the start of monetary policy easing after the economy expanded at its slowest pace in 4 years.The cut brought the overnight borrowing rate used by banks to price their loans to 4.5 percent. It was raised by 175 basis points in 2018 to contain inflation that hovered at that time near 10-year highs.&quot;The Monetary Board&#x27;s decision is based on its assessment that the inflation outlook continues to be manageable, with easing price pressures owing to the decline in food prices and improved supply conditions,&quot; said BSP Governor Benjamin Diokno. BSP Deputy Governor Diwa Guinigundo noted that inflation cooled for the sixth straight month in April to 3 percent. This was also the third straight month that it settled within the central bank&#x27;s 2 to 4 percent target.Guinigundo said that the BSP has also revised its inflation forecast. For 2019, inflation is now seen at 2.9 percent, down from the 3-percent forecast in March. For 2020, however, inflation is forecast to be at 3.1 percent. &quot;In short, inflation has started to be firmly settled within that target of 2 to 4 percent, and inflation expectations have come closer to the forecast of the BSP,&quot; Guinigundo said. Diokno, meanwhile, said that the reduction in interest rates was not related to the slower growth in the first quarter which has been blamed on budget delays that limited government spending. &quot;Our decision to unwind is independent of what happens to government spending,&quot; Diokno said. Gross domestic product in the January-to-March period grew 5.6 percent, compared to 6.3 percent in the previous quarter.Socioeconomic Planning Secretary Ernesto Pernia said Thursday that Diokno could be &quot;thinking about what to do to <a href="https://news.abs-cbn.com/business/05/09/19/bsps-diokno-looking-to-ramp-up-growth-after-q1-slowdown-pernia">ramp up</a> growth,&quot; after first quarter economic growth fell below forecasts.The BSP, meanwhile, released no decision on the amount that banks are required to keep as reserves. Some analysts had been expecting the central bank to also cut the reserve requirement ratio (RRR), which would have released more liquidity into the economy. Diokno told ANC on May 3 that reductions in the benchmark lending rate and the RRR were &quot;inevitable.&quot;<ul class="op-related-articles">	<li><a href="https://news.abs-cbn.com/business/05/03/19/bsps-diokno-interest-rate-reserve-requirement-cuts-are-inevitable">BSP&#x27;s Diokno: Interest rate, reserve requirement cuts are &#x27;inevitable&#x27;</a></li>	<li><a href="https://news.abs-cbn.com/business/04/29/19/reserve-ratio-should-be-single-digit-before-2023-diokno">Reserve ratio should be single digit before 2023: Diokno</a></li></ul>Eight of 12 economists in a Reuters poll predicted the central bank would deliver a quarter-point reduction in its benchmark interest rate on Thursday. Four of the 8 further said the policy rate cut would also be accompanied by a 100 basis point reduction in the RRR.Three expected the rate on the central bank&#x27;s overnight repurchase facility and the RRR to be kept unchanged at 4.75 percent and 18 percent, respectively. One said the main rate would be kept steady but the RRR would be cut by 100 basis points. <div>-- with reports from Reuters </div>

The Bangko Sentral ng Pilipinas, according to analysts, has scope to ease policy as inflation cools and economic growth recovers.

The Bangko Sentral ng Pilipinas, according to analysts, has scope to ease policy as inflation cools and economic growth recovers.