Philippine CB Reduces Key Rates Unexpectedly

The Philippine central bank lowered its key rates unexpectedly by 25 basis points to support economic recovery amid increased downside risks to growth.

The Monetary Board of the Bangko Sentral ng Pilipinas, or BSP, on Thursday, decided to reduce the overnight reverse repurchase facility rate to 2.00 percent from 2.25 percent. The new rate will take effect on November 20.

The bank was expected to leave its key rates unchanged. The bank had reduced its key rate by 50 basis points each in June, April and March and by 25 basis points in February.

The interest rates on the overnight deposit and lending facilities were also lowered 1.50 percent and 2.50 percent, respectively.

The central bank is likely to pause at its rate at the December meeting, now that real policy rates have fallen even deeper into negative territory with the central bank likely calling for a renewed push for additional fiscal spending to address the freefall in economic activity as Covid-19 infections remain elevated in the country, Nicholas Mapa, an ING economist said.

Uncertainty remains elevated amid the resurgence of Covid-19 cases globally, the central bank said. However, global economic prospects moderated in recent weeks.

The board noted that muted business and household sentiment and the impact of recent natural calamities could pose strong headwinds to the economic recovery in the coming months.

The board assessed that there remains a critical need for continuing policy support measures to bolster economic activity and boost market confidence.

With a benign inflation environment and stable inflation expectations, the board viewed that there is enough policy space for a reduction in the policy rate at this time to uplift market sentiment and nurture the country’s economic recovery amid increased downside risks to growth.

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