The Bangko Sentral Keeps Interest Rates Steady, What Does This Mean?

There are 'encouraging signs' of a recovery
Photo/s: Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas on Thursday maintained the benchmark interest rate for the second straight policy meeting. What does this say about the economy? Governor Benjamin Diokno said that while the threat of COVID-19 remains, there are "encourging signs" of a rebound.

The BSP slashed the overnight repurchase rate of RRP by a total of 175 basis points this year, bringing it to 2.25% from 4% at the start of the year. Of the total cuts, 150 basis points were delivered during the quarantine period.

The overnight rate is the BSP's lever, providing a reference for banks when pricing their loans. If the benchmark goes down, the interest rate that you see on your home, car or credit card bill should go down too, over time, not instantly.

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That the BSP cut the RRP by over half since January speaks of the seriousness of the pandemic's blow on the economy. Lower interest rates mean relief for borrowers. 

"The BSP observed encouraging signs of recovery in domestic economic activity, supported by ample liquidity in the financial system," Diokno said in a livestream. Ample liquidity means there's enough money in circulation to meet the needs of the economy.

Inflation expectations "remain firmly anchored" and global economic stability has stabilized, he said. 

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"The Monetary Board is of the view that a continued pause will allow prior measures by the BSP to further work their way throught the economy," he said.

The government's twin efforts to ease restrictions while sustaining safety measures against the virus will "lift market sentiment and aid the economy," he said.

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"Looking ahead the BSP stands ready to deploy its full arsenal as needed," he said.

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