Monetary Board cuts policy rate, reserve requirements


Graphics by Bangko Sentral ng Pilipinas


For the third time this year, the Monetary Board cut policy rates amid a benign inflation outlook despite the rising oil prices and African Swine Fever (ASF) outbreak in some parts of Luzon.


In a statement that he read after the Monetary Board (MB) meeting on September 26, 2019, MB chairman and Bangko Sentral ng Pilipinas (BSP) governor Benjamin E. Diokno said the interest rate on the BSP’s overnight reverse repurchase (RRP) facility will be reduced by 25 basis points (bps) to 4% effective September 27, 2019.


Accordingly, the interest rates on the overnight deposit and lending facilities were reduced to 3.5% and 4.5%, respectively.


The MB also decided to reduce the reserve requirements for universal/commercial banks (U/KBs), thrift banks (TBs), and rural banks (RBs) by 100 basis points (or one percentage point).

Effective on the first day of the first reserve week of November 2019, the reserve requirements for U/KBs will be 15% (from the current 16%). For thrift banks and rural banks, the reserve requirements will be 5% and 3%, respectively.


The reduction will apply to the deposits and deposit substitute liabilities in local currency of banks.


This is aimed at lowering financial intermediation costs and increasing domestic liquidity in support of credit activity.


The MB reached these decisions nearly three weeks after the Philippine Statistics Authority (PSA) announced that headline inflation decelerated to a new low of 1.7% in August 2019.


Read related story: As rice deflation continues, inflation hits new low


Latest baseline forecasts of the BSP also continue to indicate that inflation is likely to settle within the lower half of the target band of 3.0 percent ± 1 percentage point for 2019 up to 2021.


The risks to inflation come mainly from the volatility in oil prices due to geopolitical tensions in the Middle East and from the potential impact of the African Swine Fever outbreak on food prices.


The MB also noted that prospects for global economic growth are likely to remain weak owing mainly to uncertainty over trade policies. Firm domestic spending and progress on policy reforms will serve as a buffer against global headwinds.


“Given these considerations, the Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate to support economic growth and reinforce market confidence,” Diokno said.


The MB started reducing the policy rate in May 2019, after raising this five times in 2018 by a total of 175 bps to temper the elevated inflation rate. (Ventures Cebu)

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