MANILA (UPDATE) - The Bangko Sentral ng Pilipinas on Thursday cut the benchmark interest rate by 25 basis points, resuming policy easing as inflation accelerated past market forecasts but stayed within the government's target range.
Thursday's cut brought the overnight borrowing rate used by banks to price loans to 3.75 percent.
Inflation accelerated to 2.9 percent in January, compared to the 2.7 median forecast of economists in a Bloomberg poll, and the central bank think tank's forecast inflation of 2.5 to 3.3 percent.
This was still within the government's full-year target of 2 to 4 percent.
"Inflation expectations also continue to be firmly anchored within the target over the policy horizon," said BSP Governor Benjamin Diokno.
The BSP, however, also said risks to the inflation outlook continue to tilt slightly toward the upside in 2020 due to "potential upward pressures on food prices owing in part to the African Swine Fever outbreak and tighter international supply of rice."
BSP Deputy Governor Francisco Dakila Jr. said the central bank has raised its inflation forecast for this year to 3 percent from 2.9 percent announced in December.
The monetary authority is stimulating the economy as the world braced for the impact of a new coronavirus strain from China and as the country accounted for damage from the Taal Volcano eruption last January.
"Given these considerations, the Monetary Board concluded that the manageable inflation environment allowed room for a preemptive reduction in the policy rate to support market confidence."
Dakila noted that there was still "a lot of room" to adjust policy as the BSP raised interest rates by 175 basis points in 2018, but only cut rates by a total of 100 basis points since last year.
Diokno has said that he was committed to cutting rates by a total of 50 basis points this year, and lowering the reserve requirement ratio (RRR) for banks to single digits.
The BSP left the RRR at 14 percent in November last year.
Accelerating inflation meant that the window for the BSP to cut rates was narrowing, said BPI lead economist Jun Neri.