Philippine central bank cuts key policy rate by 25 bps, likely to further cut rates in 2021

The Philippine central bank, BSP, lowered its overnight reverse repurchase rate by 25 basis points to 2 percent. The curt was linked to unfavourable external and domestic factors, such as elevated global uncertainty, destructive typhoons and muted consumer and business sentiments. The rate cut is expected to raise overall confidence and strengthen economic growth, according to Governor Diokno.

On the growth front, the BSP believes that a gradual rebound is underway but also hinges critically on the strengthening of the public health system, availability of vaccine and re-invigoration of consumer and business sentiment.

The central bank revised its inflation projections based on transitory gains in food prices because of supply disruptions. While the bank expects higher annual inflation of 2.4 percent in 2020, it anticipates inflation to come in at 2.7 percent and 2.9 percent in 2021 and 2022, respectively.

“Given today’s turnaround in policy priority, we do not rule out further rate cuts next year. Even so, in our view its efficacy will be limited by weak transmission”, said ANZ in a research report.