Philippine central bank surprisingly lowers interest rate by 50 bps, unlikely to cut again in August

Philippine central bank unexpectedly lowered its overnight reverse repurchase rate today by 50 basis points to 2.25 percent. The BSP policy rate is now at a historic low. Governor Benjamin Djokno noted that low interest rates along with muted inflation will stimulate market sentiment and mitigate headwinds to growth. The expectation is for the cut to be substantially transmitted through to bank lending rates.

As noted by the governor, growing uncertainties around global and domestic growth environment influenced today’s rate cut decision. Markedly, the BSP indicated towards recent GDP growth downgrades made by many multilateral organizations like the Asian Development Bank and IMF.

The Philippine central bank has also revised its inflation projections for 2020 and 2021 to 2.3 percent and 2.6 percent, respectively. The profile continues to be mild and provides reasonable policy space.

“After the surprise rate cut today, we believe the BSP will not ease again at its August meeting. It will likely decide to gauge first the transmission and impact of today’s and previous cuts, in our view”, said ANZ in a research report.