The Monetary Board decided today to cut by another 50 basis points the Bangko Sentral’s overnight borrowing and lending rates to 10.0 percent and 12.25 percent, respectively, effective Friday, 23 March 2001. This brings the cumulative reduction to 500 basis points since December last year.
In making this decision, the Monetary Board took into account the following considerations:
- Latest inflation readings show a tapering trend in the second half of 2001, an indication that cost-push influences may turn out to be less pronounced during the year than previously expected;
- There are signs of continued weakness in the international economy. Recent data showing decline in consumer spending and steep fall in share prices in the US reflect waning consumer confidence. At the same time, Japan’s economic recovery remains slow to take hold. These developments pose constraints on the Philippines’ growth objectives.
- The latest cut in the Federal Funds Rate by the US Fed allows scope for further easing of the monetary policy setting. This will maintain the yield differentials between domestic and foreign interest rates.
On balance,the BSP believes that with more manageable inflationary expectations, the policy rate cut would propel increased economic activities supportive of the government’s overall macroeconomic goals.
The BSP, however, will continue to monitor closely evolving conditions in order to mitigate risk factors that could rekindle inflationary pressures.