The Bangko Sentral ng Pilipinas (BSP) on Thursday surprised the market by trimming its key interest rates to their lowest level to further support the Philippine economy amid the lingering impact of the coronavirus disease 2019 (Covid-19) pandemic.

The central bank’s overnight borrowing, lending and deposit rates were slashed by 25 basis points (bps) to 2.00 percent, 1.50 percent and 2.50 percent, respectively, after its policymaking Monetary Board held its seventh rate-setting meeting for 2020.

In a virtual briefing, BSP Governor Benjamin Diokno noted that uncertainty remained high as the number of coronavirus cases surged anew globally.

As of Thursday, the number of Covid-19 infections worldwide climbed to 56.3 million, with over 11.5 million from the United States, according to the latest tally from Johns Hopkins University. Of the total, more than 1.35 million died.

“Monetary authorities also observed that global economic prospects have moderated in recent weeks,” he said.

According to Diokno, the country’s economic recovery could face strong headwinds in the coming months, given the muted business and household sentiment, and the impact of recent natural calamities amid the slower contraction in domestic output in the third quarter.

The Philippines remained in recession after gross domestic product (GDP) slid by 11.5 in the third quarter, better than the 16.9 percent in the second, but worse than the 0.7 percent in the first. This brought the nine-month contraction in GDP to 10 percent.

Taking all these into consideration, Diokno said, the Monetary Board highlighted the need for continuing policy support measures to bolster economic activity and market confidence.

“With a benign inflation environment and stable inflation expectations, the Monetary Board sees enough policy space for a reduction in the policy rate at this juncture to uplift market sentiment and nurture the country’s economic recovery amid increased downside risks to growth,” he added.

Also at the briefing, BSP Deputy Governor Francisco Dakila Jr. said monetary authorities believed their latest policy move “will help support the economic activity that is being done in an environment [where] inflation is largely benign.”

The central bank also raised its inflation forecast for 2020 from 2.3 percent to 2.4 percent, but reduced the estimate from 2.8 percent to 2.7 percent for 2021 and from 3.0 percent to 2.9 percent for 2022.

Factors behind the revised projection include the faster inflation rate in September and October, and quicker gains in meat and fish prices because of the African swine fever and adverse weather conditions.

For the next two years, Dakila said, the Monetary Board took into account the lower-than-expected GDP contraction in the third quarter, lower crude oil prices and the appreciation of the peso.

According to Diokno, consumer price growth is projected to remain within the government’s target range of 2 to 4 percent, as the latest baseline forecasts continue to indicate a benign inflation environment.

“Average inflation is seen to settle within the lower half of the target band for 2020 up to 2022, reflecting slower domestic economic activity, lower global crude oil prices and the recent appreciation of the peso,” he said.

“The balance of risks to the inflation outlook also remains tilted toward the downside, owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic,” he added.

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