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The Monetary Board of the Bangko Sentral ng Pilipinas reduced the interest rates anew on Thursday to soften the impact of the pandemic.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the Monetary Board decided to cut the key policy rate by 50 basis points to 2.25 percent, making it the lowest policy rate in Philippine history.

The move follows a series of aggressive cuts meant to soften the economic woes brought about by the COVID-19 outbreak. Overnight deposit and lending facility interest rates have also been trimmed to 1.75 percent and 2.75 percent respectively.

"The Monetary Board noted that even as economies begin to reopen, the global recovery would likely be protracted and uneven," said Diokno in a recent BSP briefing.

"Hence, there remains a critical need for continuing measures to bolster economic activity and support financial conditions especially the affected implementation of interventions to protect human health, boost agricultural productivity and build the infrastructure," he added.

The International Monetary Fund recently slashed its global economic forecast for 2020 as the world continues to grapple with the effects of the pandemic. The IMF expects global GDP to contract by 4.9 percent this year, worse than its 3 percent forecast in April.

The recent BSP policy rate cut also came at a time of softer inflation and shrinking economic output, as lockdown measures forced most businesses to stop or scale down operations and consumers stuck at home.

The BSP also raised its inflation forecast for 2020 modestly to 2.3 percent from the 2.2 percent it announced in May. The central bank likewise increased its 2021 inflation forecast by 0.1 percent to 2.6 percent.

BSP Deputy Governor Francisco Dakila Jr. attributed the revision to rising global oil prices, which was partially offset by weaker economic growth locally and internationally and the peso's stability.

Banks and other lending firms use the BSP's rates as their benchmark in setting loan, credit card, and deposit rates. The central bank has brought the key yield down by a cumulative 1.75 percentage points in the last three months.

"The surprise BSP rate cut of -0.50 may be seen as a pre-emptive monetary easing measure needed most by the economy at this time and in the coming months," said RCBC economist Michael Ricafort.

"Given the lack of national government funds for additional fiscal stimulus measures as signalled by some economic managers. more monetary easing measures may be needed as seen by the latest BSP rate cut to prevent the economic contraction from spiralling further and also to help mitigate/limit the risks of recession looming locally and in many countries worldwide largely brought about by the COVID-19 lockdowns/pandemic," he added.

Ricafort likewise mentioned the recent trimming of policy rates may signal a similar surprise cut in reserve requirement ratios in the days or months to come. During the briefing, the BSP also noted there may be room to further adjust bank reserve requirements.

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