MANILA (UPDATE) - The Bangko Sentral ng Pilipinas on Thursday kept the benchmark overnight borrowing rate steady at 2.25 percent after 4 interest rate cuts this year as the newly downgraded COVID-19 restrictions stepped up the gas for economic recovery.
The Monetary Board decided to keep key interest rates, used by banks to price loans, steady after a cumulative cut of 175 basis points this year.
Majority of this year's cuts were delivered during the COVID-19 lockdowns.
"The Monetary Board decided to maintain interest rate of the BSP overnight reverse repurchase facility at 2.25 percent…The decision is based on its assessment that the inflation environment remains benign," Governor Benjamin Diokno said.
The policy making body of the BSP said there's no need to adjust reserve requirements at this time, as liquidity remains "ample".
Metro Manila and its neighboring provinces were placed back under the lesser strict general community quarantine until Aug. 31. Under GCQ, more businesses and public transport are allowed to operate.
For this year, the BSP adjusted its inflation forecast to 2.6 percent from 2.3 percent, and 3 percent from 2.6 percent in 2021.
Diokno has been vocal about holding off further cuts to give the market time to absorb the effect and liquidity resulting from recent monetary policy actions, which he said "works with a lag".
Diokno however said, the Monetary Board still has elbow room to use its "full arsenal" of actions if needed to help cushion the impact of the pandemic to the economy.
The government needs to support economic activities using the fiscal side as the BSP can only do so much, said Trading Edge chief investment strategist Ron Acoba.
"The BSP has already cut interest rate aggressively to an all-time low… other than that the central bank is also engaged in cutting the reserve requirement of banks," Acoba said.
"Without all of these and if we look at the liquidity of the capital market, I’d say that the central bank is correct and the market is correct in expecting it to hold and maintain its current policy," he added.
With record-low interest rates, the BSP urged the public to spend in order to revive economic activities.
Diokno earlier said inflation was "the least" of their worries while urging the public to spend while interest rate is at a "record-low."
Inflation in July quickened to 2.7 percent, well within the government target of 2 to 4 percent.
The economy crash-landed into recession due to the full impact of the coronavirus pandemic, diving 16.5 percent in the second quarter.
First quarter gross domestic product contracted by 0.7 percent. Government estimates showed that the economy could shrink by as much 5.5 percent.
Economic managers are confident that the economy could recover in as early as 2021.
However, former Socioeconomic planning secretary Ernesto Pernia said the recovery depends on the success of the government's COVID-19 response which could gain from more collaboration with concerned agencies, private firms and the scientific community.