A Second Central Bank Interest Rate Cut in the Philippines

March 1, 2012

Monetary policy easing, the first since July 2009, announced January 19 has been followed up with a second 25-basis point reduction of the Filipino overnight borrowing and lending rates to 4.0% and 6.0%, respectively. In taking today’s action, Monetary Board officials at Bangko Sentral ng Pilipinas restored the cyclical lows that had prevailed from July 2009 until a duo of rate hikes in March and May of last year.  A statement from the central bank speaks of modestly expanding domestic demand, external headwinds, and benign inflation prospects. "The Monetary Board is of the view that the benign inflation outlook has allowed further scope for a measured reduction in policy rates to support economic activity and reinforce confidence."  Expected inflation appears well-anchored, and officials project inflation this year and next will probably wind up in the lower half of their 3-5% target range. 

The statement leaves no cue about the direction and timing of the next interest rate change other than that such will be driven by data trends.  I suspect it will take a clear and significant deterioration of the global landscape to prompt a further cut to levels below the Great Recession lows.  Six easings between December 2008 and July 2009 cut the central bank interest rates by 200 basis points.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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