Monetary Board cuts policy rates

PHILIPPINES - In Brief 06 Feb 2020 by Romeo Bernardo

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In a move described as “pre-emptive,” the Monetary Board today cut its set of policy rates by 25bp, reducing the key overnight RRP rate to 3.75%. Although the BSP Governor has been signaling that a 50bp rate cut is in store for 2020, we were not expecting a rate cut this early in the year. In his statement, BSP Governor Benjamin Diokno said that the decision to cut rates is meant to support market confidence and ward off the potential spillovers associated with increased external headwinds, mentioning in particular weakening prospects for global economic growth and the outbreak of the novel coronavirus. The move is made possible by the BSP’s benign inflation outlook, with forecast inflation rates of 3% this year and 2.9% next.We will continue to monitor how the series of monetary easing actions since last year affects domestic credit growth. Latest data show ample domestic liquidity, with M3 growth recovering to 11% in December, although domestic credits continue to grow modestly, with credits to the private sector rising 7.5%. Thus far, reductions in the reserve requirement ratio (RRR) totaling 400bp last year have been accompanied by increases in monies parked in the BSP’s overnight and term deposit accounts, indicating that the funds have not been lent out yet.