BSP cuts key overnight rates again by half a percentage point

The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), further reduced its key policy rates by half a percentage point yesterday.

Effective Monday, the BSP will implement its fourth policy rates cut since May last year, trimming by a further 50 basis points, its overnight borrowing and lending rates to 13 percent from 13.5 percent and 15.25 percent from 15.75 percent, respectively.

The latest cut brings the reduction in BSP’s policy rates to a cumulative total of 200 basis since Dec. 4.

The BSP said the tiering system will continue to apply for overnight placements of banks under the borrowing window as follows: 13 percent for placements of up to P5 billion; 11.5 percent for the next P5 billion; and 10 percent for placements exceeding P10 billion.

BSP Gov. Rafael Buenaventura said the MB’s decision to further cut key policy rates was largely influenced by the US Federal Reserve Board’s move to cut its own key policy rates by a half percentage point as well as the inflation level for December which stood at 6.6 percent.

"The recent 50-basis point interest rate cut by the US Fed and the market’s view that another rate cut is just around the corner reinforce the BSP’s monetary policy easing stance," Buenaventura said.

He added the rate cut was done despite the political and economic difficulties following the spate of bombings in Metro Manila and the impeachment trial of President Estrada.

"The Monetary Board views the turbulence in the foreign exchange and domestic stock markets during the first few days of this year as temporary," Buenaventura said.

He expressed optimism that confidence in the foreign exchange and stock markets will be restored "as market players focus on the underlying fundamentals of the economy."

This, "along with the improved prospects for the resolution of the political crisis have allowed room for the BSP to implement its commitment to reduce further its policy rates," he added.

The BSP chief added the MB’s decision also took into consideration the strong likelihood of restoring stability in the foreign exchange market.

At the same time, the BSP said the December inflation level of 6.6 percent falls within its expectations of a 6.5-percent to seven-percent inflation rate.

The local financial market has been expecting a further reduction in US interest rates to help ease pressure on local lending rates.

Earlier, Buenaventura assured that even if the inflation level rises to eight percent this year, the BSP could still bring down its key borrowing rate to between 11 and 12 percent.