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MB cuts key interest rates to crank up economy

Updated: Jan 23, 2021

A portion of Cebu Business Park before the local COVID-19 epidemic.

The Monetary Board (MB) has decided to cut key interest rates to stimulate the economy which has slowed down due to the enforcement of quarantine protocols against the spread of Sars-CoV-2, the novel coronavirus that causes coronavirus disease 2019 (COVID-19).

In a statement, the Bangko Sentral ng Pilipinas (BSP) said a further reduction in the policy rate was decided amidst a benign inflation environment to help mitigate the downside risks to growth and boost market confidence.

“Even as domestic liquidity dynamics and market function continue to improve owing to prior liquidity-enhancing measures, the Monetary Board believes that keeping an accommodative stance will further ease the cost of borrowing and ensure ample credit and liquidity in the financial system,” the central bank said.

The interest rate on the BSP’s overnight reverse repurchase (RRP) facility was cut by 50 basis points (bps) to 2.25%, effective June 26, 2020.

The interest rates on the overnight deposit and lending facilities were reduced to 1.75% and 2.75%, respectively.

Latest baseline forecasts indicate that inflation could settle near the low end of the target range of 3% ± 1 percentage point inflation for 2020 up to 2022, with inflation expectations remaining firmly anchored over the policy horizon.

Meanwhile, the balance of risks to the inflation outlook leans toward the downside from 2020 up to 2022 owing largely to the potential impact of a deeper and more disruptive pandemic on domestic and global demand conditions.

It is not only the Philippine economy that has slowed down. The outlook for global growth has also deteriorated due to “considerable uncertainty” over the COVID-19 pandemic.

“Even as economies begin to reopen, the global recovery would likely be protracted and uneven,” the Bangko Sentral said in a statement.

“Hence, there remains a critical need for continuing measures to bolster economic activity and support financial conditions, especially the effective implementation of interventions to protect human health, boost agricultural productivity and build infrastructure,” it added. (Ventures Cebu)

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