MANILA, Philippines — The Bangko Sentral ng Pilipinas on Thursday cut its benchmark rate for the third time this year to support the economy amid external headwinds.
At its meeting, the BSP’s Monetary Board slashed its key rate by 25 basis points to 4% as benign inflation gives the central bank enough room to ease monetary policy.
“The Monetary Board’s decision is based on its assessment that price pressures have eased further since the previous meeting,” the central bank said.
“At the same time, the Monetary Board believes that prospects for global economic growth are likely to remain weak owing mainly to uncertainty over trade policies. Firm domestic spending and progress on policy reforms will serve as a buffer against global headwinds,” it added.
Banks typically use the BSP's policy rate as basis on charging their loans to consumers.
Lower interest rates encourage bank lending, injecting more money to the country’s financial system which, in turn, supports economic expansion.
The Philippine economy expanded 5.5% in the second quarter, weaker than 5.6% recorded in the preceding three months after the delayed approval of the 2019 budget disrupted state spending.
Here’s a comment from an economist on the BSP’s latest move:
“The main reason we expect more loosening over the months ahead is the benign outlook for inflation... Another reason to expect further loosening is the worsening outlook for growth. Despite policy being loosened, the poor outlook for exports means growth is likely to remain subdued.”
— Alex Holmes, Asia economist at Capital Economics.