Bangko Sentral cuts key rates by 25 basis points

MANILA, Philippines – The policy-making Monetary Board of the Bangko Sentral ng Pilipinas (BSP) cut policy rates by 25 basis points to 4.25 percent for the overnight borrowing rate and 6.25 percent for the overnight lending rate, BSP Governor Amando M. Te-tangco Jr. announced yesterday.

The rate cut, widely expected by analysts, followed a lower-than-expected economic growth in the first quarter of 0.4 percent.

“In this connection, the decision to lower policy rates could provide additional boost to spending and investment in the economy and support market confidence,” Tetangco said.

Monetary authorities also took into account the latest inflation outlook.

 “The Monetary Board decided to further cut policy rates based on the latest baseline forecasts which indicated that average inflation is expected to remain within the target ranges in 2009 and 2010,” Tetangco said.

BSP Deputy Governor Diwa Guinigundo said the central bank is keeping its average inflation forecast of 3.4 percent for 2009. For 2010, the central bank expects average inflation to hit 3.7 percent, slower than the previous projection of 4.1 percent.

Inflation in April slowed down to 4.8 percent from 6.4 percent in March. The BSP expects inflation in May to hit anywhere from 3.3 percent to 4.2 percent.

At the same time, monetary authorities also noted that global oil prices and volatility in the foreign exchange market are possible sources of upside risk to future inflation.

Yesterday’s rate cut is the fifth downward adjustment since December 2008 and represents a cumulative reduction of 175 basis points in the BSP’s key policy rates. Tetangco noted that the 4.5 percent overnight borrowing rate is the lowest rate implemented since May 15, 1992.

Tetangco said monetary authorities are prepared to move quickly to address potential risks to price stability while continuing to support domestic activity consistent with a non-inflationary path.

He said that the global economic situation has yet to normalize as there are still large imbalances in the global financial markets.

“The Monetary Board observed that there are encouraging signs that the global slowdown may be bottoming out, but it is too early to conclude that global economic conditions are clearly moving towards normalcy,” Tetangco said. –Iris C. Gonzales, Philippine Star