A Filipino Central Bank Rate Cut Catches Most but Not All Analysts by surprise

July 26, 2012

Bangko Sentral ng Pilipinas has implemented a third 25-basis point cut of its overnight repo and reverse repo rates.  The new levels are respectively 3.75% and 5.75%.  Similar reductions were announced earlier this year on January 19 and March 1.  Policy was not changed at the immediately prior meeting on June 14, but today’s move was justified in a statement on the central bank web site on both inflation and growth grounds:

While the Philippine economy can rely on the resilience of domestic spending to sustain growth, additional policy support would serve as a buffer against strong global headwinds.  On balance therefore the benign inflation outlook provides room for a reduction in policy rates as a pre-emptive move against the risks associated with the global slowdown.

The Monetary Board targets CPI inflation between 3-5%, observes receding price pressures, projects inflation will be mostly in the lower half of the target range this year and next, and attaches a downside bias to risks associated with that baseline forecast.  Expected inflation is contained and in fact has drifted a bit lower this year.

Two hundred basis points of easing was implemented during the Great Recession from December 2009 and July 2009.  In early 2011, officials implemented 25-bp rate hikes in March and May, but today’s third straight cut brings the repo and reverse repo rates to an even lower level than associated with the depth of the Great Recession.

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

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