Possible risks to the inflation outlook over the near-term include the volatility in oil prices due to geopolitical tensions in the Middle East and the potential impact of the African Swine fever outbreak on food prices.
The rate at which the Bangko Sentral ng Pilipinas (BSP) lends to and borrows from banks was cut 25 basis points by the Monetary Board (MB) owing to easing price pressures, BSP Governor Benjamin Diokno said.
“At its meeting on monetary policy Thursday, the MB decided to cut the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points (bps) to 4 percent,” Diokno said.
“Accordingly, interest rates on the overnight deposit and lending facilities were reduced to 3.5 percent and 4.5 percent, respectively,” he added.
According to him, the decision was based on the assessment that price pressures have eased further since the 8 August MB rate-setting meeting.
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Also, the latest baseline forecast of the the BSP continues to indicate inflation likely settling within the government’s lower half of the 2 to 4 percent target. The first eight months show inflation consistently dropping from 4.4 percent in January to only 1.7 percent in August.
“Inflation expectations also remain well-anchored within the inflation target range based on the BSP’s survey of private sector economists,” Diokno said.
The BSP’s full-year forecast inflation this year was also adjusted down to only 2.5 percent from 2.6 percent six weeks earlier.
Possible risks to the inflation outlook over the near-term include the volatility in oil prices due to geopolitical tensions in the Middle East and the potential impact of the African Swine fever outbreak on food prices.
The anticipated cut in the banks’ deposit reserves or the reserve requirement ratio (RRR) requires further assessment of economic data such as domestic liquidity (M3) and gross domestic product growth.
“We are looking closely at the impact on bank lending and also market interest rates. We consider also the July data on M3 and bank lending. So, in the coming months we will be looking closely at the data on monetary conditions…to see the effects of these various actions,” BSP Department of Economic Research Director Dennis Lapid said.
Diokno earlier said unwinding the current 16 percent RRR by another 100 basis points might be possible in the fourth quarter. It may be, imposed either in full or in tranches.
