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Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group assessed the recent decision to cut rates by the central bank of Philippines (BSP).

Key Quotes

“Bangko Sentral ng Pilipinas (BSP), as expected, cut its overnight reverse repurchase rate (RRP) by another 25bps to 4.00% yesterday after Governor Benjamin Diokno had flagged further rate cuts since mid-Sep. This back-to-back rate cut has resulted in a collective 75bps reduction in RRP this year, reversing partially last year’s total hike of 175bps. The central bank cited further easing in price pressures and weak global growth momentum as reasons behind yesterday’s action, but remained confident that firm domestic spending and progress on policy reforms will serve as a buffer against global headwinds”.

“The only difference in yesterday’s monetary policy statement (MPS) compared to Aug’s is the outlook for inflation in 2020. BSP sees risks to inflation shifting to the upside for 2020, emanating from (1) higher power, transport and liquor prices; (2) potential impact of the ongoing African swine flu (ASF) epidemic crisis; and (3) volatility in global oil prices from geopolitical tensions in Middle East”.

“In all, BSP continues to leave its door open for future rate cuts, keeping the language “the BSP will continue to monitor emerging price and output developments to ensure that monetary policy settings remain consistent with price stability while being supportive of sustained noninflationary economic growth over the medium term”.

“On the local currency front, Governor Diokno has on 24 Sep said he isn’t worried about the PHP as the market has been well behaved with very few incidents of volatility that needed intervention. The latest rate cut was also done in line with the Governor’s clear and transparent communication recently”.