Monetary Board cuts policy rates by 50 basis points

March 19, 2020

The Monetary Board on Thursday reduced policy rates by 50 basis points to spur the economy as Luzon,the Philippines' main island, is under enhanced  community quarantine.

This came after a 25 basis point cut before the 2019 coronavirus disease(COVID-19) gripped the country.

The interest rate on the BSP’s ( Bangko Sentral ng Pilipinas) overnight reverse repurchase (RRP) facility,cut by 50 basis points (bps), is now 3.25 percent, effective Friday

The interest rates on the overnight lending and deposit facilities were reduced to 3.75 percent and 2.75 percent, respectively.

''The Monetary Board noted that while the enforcement of quarantine measures could help in slowing the spread of the virus, the resulting disruptions to industries and private spending are likely to reduce economic growth in the near term,'' it said.

''Moreover, COVID-19 has likewise dampened prospects for the global economy, which could negatively impact tourism and trade, Overseas Filipino remittances, and foreign investments,'' it added.

''Given these considerations, the Monetary Board decided that there is a need for a follow-on monetary policy response to address the adverse spillovers associated with the ongoing pandemic,'' it said.

''With a manageable inflation environment and stable inflation expectations, the Monetary Board sees enough policy space for an assertive reduction in the policy rate at this juncture to cushion the country’s growth momentum and uplift market confidence amid stronger headwinds,'' it said.

The easing is also aimed at mitigating the risk of financial sector volatility in light of unfolding global developments by ensuring adequate domestic liquidity and credit in the financial system as well as lowering borrowing costs for affected firms and households, it said.

The Monetary Board  reiterates its support for urgent and carefully coordinated measures with other government agencies to alleviate the spillover effects of the pandemic on people and firms, with a view toward preventing any long-lasting economic and social damage.

Going forward, the BSP will remain data-driven as it considers a range of other supplementary measures that may be required to support non-inflationary and sustainable growth over the medium term. These supplemental actions may include, but are not limited to, recalibrating the interest rate corridor settings; reducing the reserve requirement ratios; suspending the term deposit facility (TDF) auctions; and ensuring access to liquidity-enhancing facilities such as the rediscounting windows. The BSP is prepared to use its full range of monetary instruments and to deploy regulatory relief measures as needed in fulfillment of its price and financial stability mandates.   DMS