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- Published on Thursday, 25 October 2012 20:38
- Written by June Vallecera / Reporter
The likelihood
for inflation to stay well within target of 5 percent this year no
matter the “continued considerable global headwinds” over the next 18 to
24 months helped convince the Bangko Sentral ng Pilipinas (BSP) to cut
its policy rates on Thursday by another 25 basis points.
This
has the effect of reducing the rate at which the BSP borrows from or
lends to banks to 3.5 percent and 5.5 percent, respectively.
As a result, BSP
Governor Amando M. Tetangco Jr. said it should now cost less for
households and businesses to obtain loans from the banks to fund
productive undertakings down the line.
“The domestic
underpinnings of Philippine economic growth remain firm. However,
additional policy support could help ward off the risks associated with
weaker external demand by encouraging investment and consumption,”
Tetangco said.
According to Tetangco, the 25-basis-point rate cut was based on the assessment that price pressures remain benign.
Forecast inflation
this year was seen averaging only 3.3 percent, or well within the
3-percent to 5-percent target range, and only 3.9 percent for next year.
Risks to the inflation outlook continue to be broadly balanced, as well.
“Potential upside
risks to inflation remain, including pending power-rate adjustments and
higher global prices for some grains. Nonetheless, subdued global demand
could moderate upward pressures on international commodity prices, thus
tempering the overall outlook for inflation,” he said.
Tetangco’s deputy,
Diwa C. Guinigundo, said the rate cut was also seen to provide
additional support to local growth, seen as high as 6 percent this year
in terms of the gross domestic product.
“This can help drive the economy and provide additional boost to domestic demand,” Guinigundo said.
Analysts previously
said the rate cuts should help moderate the flow of foreign capital that
has boosted the value of the local currency the peso by around 6
percent from year to date.
Sterilizing all that
liquidity entering the system has proven expensive for the BSP, which
now pays for funds parked at its special deposit account (SDA) window
at a reduced rate, as well.
SDAs of some P1.8
trillion as of last count helped ensure there was just enough money in
circulation for the purchase of services and goods by keeping such funds
safely within the vaults of the BSP.
The interest rate on term reverse repos, repurchase and SDAs were also reduced by the same measure, Tetangco said.
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