Central Bank cuts rates due to slower growth, inflation

MANILA – Philippine monetary officials on Thursday cut by 25 basis points the Bangko Sentral ng Pilipinas’ (BSP) key rates in response to the budget impasse’ projected effect on domestic growth and the continued deceleration of inflation.

The cut, which will take effect starting May 10, 2019, is the first after the same decision in October 25, 2012, which in turn, was due to benign inflation and weak global growth outlook.

Starting Friday, rate of the BSP’s overnight reverse repurchase (RRP) facility will be 4.5 percent.

“In deciding on the stance of monetary policy, the Monetary Board noted the impact of the budget delays on near-term economic activity, but took the view that the prospects for domestic demand remain firm, to supported by a projected recovery in household spending and the continued implementation of the government’s infrastructure program,” BSP Governor Benjamin E. Diokno said in a briefing.

President Rodrigo R. Duterte only managed to sign the 2019 national budget last April due to delays in the measure’s approval by Congress.

He signed the PHP3.757-trillion national budget but vetoed about PHP75 billion-worth of projects that were included by members of the House of Representatives in the version of the budget that was already approved by the Bicameral Conference Committee.

Authorities said that due to delay in the approval of this year’s national budget, growth in the first quarter of the year slowed to 5.6 percent.

The Philippine Statistics Authority (PSA) said domestic output, as measured by gross domestic product (GDP), in the first three months this year slowed to 5.6 percent, the slowest since the first quarter of 2015’s 5.1 percent. GDP growth in the last quarter of 2018 is 6.3 percent while it is 6.5 percent in the first quarter of 2018.

Government final consumption expenditure (GFCE) posted slower growth of 7.4 percent from 13.6 percent in the first quarter last year.

However, due to slowdown in inflation rate, household final consumption expenditure (HFCE) posted a faster growth of 6.3 percent from year-ago’s 5.6 percent.

Diokno said impact of last year’s total of 175 basis points increase in the key rates has not been fully felt but expects improvement on investments after the rate cut since these are closely related.

Relatively, BSP Deputy Governor Diwa Guinigundo, in an interview after the briefing, said the policy-making Monetary Board (MB) took note of the lower domestic output report in the first quarter this year, especially the drop in government spending.

“The Monetary Board cannot ignore the major driver of that slowdown so the Board noted that particular reason for the slowdown,” he said.

Guinigundo, however, clarified that the rate cut is not a monetary support for the expansion of the domestic economy.

He explained that the MB decision “is consistent with our inflation targeting framework” since inflation until 2020 is expected to remain within the government’s 2 to 4 percent target band until 2022.

He said that since inflation is expected to remain within target until next year, the BSP has the flexibility to either cut or keep the policy rates.

“I beg to differ from that perspective of the BSP’s monetary policy is meant to support those objectives. But because of that decision it’s more of a consequence than the goal of monetary policy. The goal of monetary policy is keeping prices stable. That’s the primary mandate of the BSP,” he said.

Guinigundo also stressed that “at this point we can say that we are in a right policy point.”

He said that since the government can now spend according to program “we should be seeing better and more aggressive public spending down the road.”

“And if that happens, I think we should see a more robust and a more resilient economic growth,” he added. (PNA)


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