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Monetary Board Cuts Policy Rate by 25 Basis Points


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 4.0 percent, effective Friday, 27 September 2019. Accordingly, the interest rates on the overnight deposit and lending facilities were reduced to 3.5 percent and 4.5 percent, respectively.

The Monetary Board’s decision is based on its assessment that price pressures have eased further since the previous meeting. Latest baseline forecasts of the BSP continue to indicate that inflation is likely to settle within the lower half of the target band of 3.0 percent ± 1 percentage point for 2019 up to 2021. Inflation expectations also remain well-anchored within the inflation target range based on the BSP’s survey of private sector economists.

The Monetary Board also noted that the balance of risks to the inflation outlook have shifted toward the upside for 2020, while it is seen to tilt to the downside for 2021. Upside risks to inflation over the near term emanate mainly from volatility in oil prices due to geopolitical tensions in the Middle East and from the potential impact of the African Swine Fever outbreak on food prices. Meanwhile, the subdued pace of global economic activity continues to temper the inflation outlook.

At the same time, the Monetary Board believes that prospects for global economic growth are likely to remain weak owing mainly to uncertainty over trade policies. Firm domestic spending and progress on policy reforms will serve as a buffer against global headwinds.

Given these considerations, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate to support economic growth and reinforce market confidence. Going forward, the BSP will continue to monitor emerging price and output developments to ensure that monetary policy settings remain consistent with price stability while being supportive of sustained non-inflationary economic growth over the medium term.

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