The Philippines central bank established a narrower interest rate corridor. It announced the Lending Rate as the ceiling rate at 3.5%, replacing the repo rate of 6%. The reverse report rate is replaced by the new Borrowing Rate at 3%. Meanwhile, the Special Deposit Account rate was kept unchanged at 2.5%. This suggests that the underlying cost of funds is maintained.
According to the central bank’s press release “the primary aim of the adoption of the IRC is to improve the transmission of monetary policy. By helping ensure that money market rates move within a reasonably close range around the BSP’s policy rate, the IRC helps to enhance the link between the stance of BSP monetary policy and financial markets and, thereby, impact the real economy.”
The rate corridor seems to be tighter at 100bps. But material changes are unlikely to credit conditions, said ANZ in a research report. According to BSP Deputy Governor Diwa Guinigundo, the new system will be set up on June 3.
“In our view, the tighter interest corridor of 100bps will likely anchor rate expectations for the term deposit auction within the lower half of the corridor”, added ANZ.
