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 50 basis points (bps) to 2.25 percent, effective Friday, 26 June 2020. The interest rates on the overnight deposit and lending facilities were reduced to 1.75 percent and 2.75 percent, respectively.
Latest baseline forecasts indicate that inflation could settle near the low end of the target range of 3.0 percent ± 1 percentage point inflation for 2020 up to 2022, with inflation expectations remaining firmly anchored over the policy horizon. Meanwhile, the balance of risks to the inflation outlook leans toward the downside from 2020 up to 2022 owing largely to the potential impact of a deeper and more disruptive pandemic on domestic and global demand conditions.
The Monetary Board observed that domestic economic activity has slowed with the enforcement of necessary protocols to slow the spread of the virus in the country. At the same time, the outlook for global growth has deteriorated further as considerable uncertainty still surrounds the extent of the health crisis. The Monetary Board noted that even as economies begin to reopen, the global recovery would likely be protracted and uneven. Hence, there remains a critical need for continuing measures to bolster economic activity and support financial conditions, especially the effective implementation of interventions to protect human health, boost agricultural productivity and build infrastructure.
Given these considerations, the Monetary Board decided that a further reduction in the policy rate amidst a benign inflation environment would help mitigate the downside risks to growth and boost market confidence. Even as domestic liquidity dynamics and market function continue to improve owing to prior liquidity-enhancing measures, the Monetary Board believes that keeping an accommodative stance will further ease the cost of borrowing and ensure ample credit and liquidity in the financial system as the economy transitions toward recovery in the coming months.
Going forward, the BSP reiterates its support for the health and fiscal programs already being rolled out by the National Government in responding to the needs of Filipino households and businesses. The BSP remains committed to deploying its full range of monetary instruments and regulatory relief measures as needed in fulfillment of its mandate to promote non-inflationary and sustainable growth.