Bangko Sentral cuts interest rates with GDP growth at 4-year low

ABS-CBN News

Posted at Aug 08 2019 04:06 PM | Updated as of Aug 08 2019 07:12 PM

MANILA -- (UPDATE) The Bangko Sentral ng Pilipinas cut the benchmark interest rate on Thursday with economic growth at its lowest in 4 years and as inflation cooled further within its target. 

The 25-basis point reduction brought the overnight borrowing rate, used by banks to price their loans, to 4.25 percent. 

"The monetary board's decision is based on its assessment that price pressures have continued to ease since the previous meeting," said BSP Governor Benjamin Diokno.

Diokno said economic expansion was weighed down by the delayed passage of the 2019 budget. Socioeconomic Planning Sec. Ernesto Pernia issued a similar statement as he announced GDP growth of 5.5 percent in the second quarter, below the market consensus of 5.9 percent.

Inflation slowed to 2.4 percent in July from 2.7 percent in June. 

For 2019, the inflation outlook was lowered to 2.6 percent from 2.7 percent; for 2020 it was brought down to 2.9 percent from 3.0 percent. For 2021, the inflation could settle at 2.9 percent, said BSP Deputy Governor Francisco Dakila. 

ING senior economist Nicholas Mapa said further rate cuts were likely with growth slowing and inflation on a downward path. 
 
"We expect the BSP to cut policy rates again by 25 bps at the September meeting given previous comments from Governor Diokno pointing to a total of 50 bps worth of rate cuts before the end of the year," Mapa said. 

Mapa said the BSP could further reduce banks' reserve requirements in the fourth quarter following the rate cuts "to help infuse fresh liquidity into the market." 

Dakila said economic managers were still optimistic about achieving the 6 to 7 percent growth target for the year. 

"The consensus was that the growth target can still be achievable but we will be closer to the lower bound of the growth target," Dakila said. 

Pernia said the Philippines needed to grow by an average of 6.4 percent in the second half to grow at least 6 percent for the full year.

The BSP hiked interest rates by a total of 175 basis points last year to rein in inflation, which peaked at a near-decade high of 6.7 percent in September and October.

It last cut the benchmark rate last May, by 25 basis points and held it steady until Thursday.

-- with reports from Reuters