BSP keeps interest rates at record low of 2.25% amid 'encouraging' hints of economic recovery
Metro Manila (CNN Philippines, October 1) — The Bangko Sentral ng Pilipinas on Thursday kept policy rates steady, maintaining key yields at an all-time low amid the global recession.
BSP Governor Benjamin Diokno said Thursday that the key interest rate stays at 2.25 percent, already the lowest in history as the Monetary Board sought to support the economy amid the ill effects of the COVID-19 crisis.
Central bank officials said current interest rate settings were "appropriate" with inflation on a downtrend, thanks to lower world crude prices and a stronger peso. However, it flagged that uncertainty remains elevated given the resurgence of coronavirus cases globally.
The economy is officially in recession following a steep 16.5 percent contraction in the second quarter that followed a 0.7 percent slide in the first three months of 2020. However, Diokno said there were "encouraging signs of recovery" in local activity, as the market remains flushed with cash.
"Given these considerations, the Monetary Board is of the view that a continued pause will allow prior measures by the BSP to further work their way through the economy," the central bank chief said.
"The gradual easing of restrictions, along with sustained efforts by the government to protect human health and livelihood, should also help lift market sentiment and aid the recovery of the economy in succeeding months," he added.
READ: Steady rise in COVID-19 cases to hamper quick economic recovery – HSBC
The government expects a gradual improvement in output as quarantine rules are eased seven months since the first lockdown was enforced.
Banks and other lending firms use the BSP's rates as their benchmark in setting loan, credit card, and deposit rates. The central bank cumulatively brought the key yield down by 1.75 percentage points so far this year.
Inflation is seen to remain under control even in the next two years, with latest estimates at 2.3 percent for 2020, 2.8 percent for 2021, and 3 percent for 2022. Deputy Governor Francisco Dakila, Jr. said there remains enough room for the BSP's policy actions if warranted, including the long-standing plan to further trim reserve requirements of banks.
"Effective strategies to address the health problem are key to rebuilding market confidence and accelerating economic activity," Dakila said, adding that government spending and fiscal policy should also step up towards this goal.
READ: Consumer confidence plunges to all-time low, to stay bleak for the rest of 2020 – BSP
The Duterte administration expects to return to its old growth path of above 6 percent in 2021, but banks and development institutions are not as optimistic. The World Bank pointed out that the rebound will depend largely on the government's ability to contain local COVID-19 infections.
