ASEAN KEY DESTINATIONS
Philippines trims rates, signals end to easing
In a statement, the Bangko Sentral ng Pilipinas (BSP) said it cut the overnight borrowing and lending rates by another 25 basis points to 4 percent and 6 percent, respectively. The borrowing rate last dipped to 4.125 percent on May 15, 1992.
The Board said its latest rate cut was “based on the latest baseline forecasts showing average inflation keeping within the target ranges for 2009 and 2010.”
“Given prevailing downside pressures on prices and output due to the impact of weaker global economic activity on domestic demand, the reduction in policy rates will support economic activity as banks are expected to pass on the lower borrowing costs to clients,” it added.
Deputy Governor Diwa Guinigundo said the BSP has reduced its inflation forecast to 3.3 percent from the previous 3.4 percent for this year.
For next year, inflation is expected to decelerate further to 3.5 percent from an earlier estimate of 3.7 percent.
“[The] inflation outlook continues to be favorable providing BSP additional room for easing monetary policy,” Guiniguindo said.
In its statement, the Board however said, “[S]ignificant monetary easing has already taken place since December 2008, with key policy rates reduced by a total of 200 basis points and liquidity provision being undertaken through lower reserve requirements, a larger rediscounting budget, and easier access to the rediscounting facility.”
“With considerable monetary stimulus already in place, and the impact of fiscal action already in the pipeline, the Monetary Board believes that prevailing monetary settings are appropriately calibrated to the outlook for inflation and domestic demand,” it added.
Guinigundo said the cumulative 200 basis points cut in policy rates will translate to lower bank lending rates to clients.
He said there was no need for infusion of additional liquidity in the system as domestic liquidity or M3 grew at 15 percent in May from 13.7 percent in April. However, bank lending slowed to 10.2 percent in May from 13.4 percent in April.
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