At its meeting on monetary policy today, the Monetary Board decided to cut the interest rate on the BSP’s overnight reverse repurchase (RRP) facility by 25 basis points (bps) to 4.25 percent. Accordingly, the interest rates on the overnight deposit and lending facilities were reduced to 3.75 percent and 4.75 percent, respectively.
The Monetary Board’s decision is based on its assessment that price pressures have continued to ease since the previous meeting. Latest baseline forecasts of the BSP indicate that inflation remains likely to settle within the inflation target of 3.0 percent ± 1 percentage point for 2019 up to 2021. Inflation expectations have also moderated further to levels consistent with the inflation target based on the BSP’s survey of private sector economists. Moreover, the risks to the inflation outlook continue to be seen as broadly balanced for 2019 and 2020, while they are seen to tilt to the downside for 2021. Weaker global economic prospects continue to temper the inflation outlook. The potential adverse effects of a prolonged El Niño episode to inflation have subsided.
The Monetary Board noted that prospects for global economic activity are likely to remain weak amid sustained trade tensions among major economies. Domestically, the outlook for growth continues to be firm on the back of a projected recovery in household spending and the accelerated implementation of the government’s infrastructure spending program, after the delay in expenditures due to the legislative impasse in the approval of the budget in January to April 2019.
On balance, therefore, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate as a pre-emptive move against the risks associated with weakening global growth. Going forward, the BSP will continue to monitor price and output conditions to ensure that monetary policy remains appropriately supportive of sustained non-inflationary economic growth over the medium term.