Interest rates are expected to remain low amid the benign inflation environment, a scenario that is good for businesses impacted by the COVID-19 pandemic, the Department of Finance said over the weekend.
In an economic bulletin, Finance Undersecretary and chief economist Gil Beltran said the manageable increases in consumer prices would allow monetary authorities to keep the prevailing interest rates at the current record-low level.
Inflation moderately increased to 2.7 percent in July from 2.5 percent in June, but well within the target range of 2 to 4 percent.
“The 364-day T-bill rate dropped to an average rate of 1.76 percent in July and 1.79 percent in the first auction in August. This will ease the burden on businesses already affected by the ongoing pandemic,” Beltran said.
Inflation rate in July rose to 2.7 percent, the highest in six months. It was fueled by faster increases in the prices of transport, tobacco and utilities indices, the Philippine Statistics Authority said.
The July print was also faster than 2.4 percent posted a year ago, bringing the average in the first seven months to 2.5 percent, still below the midpoint of the target range of 2 percent to 4 percent for the year.
Annual increments were also higher in the indices of alcoholic beverages and tobacco at 19.3 percent; housing, water, electricity, gas, and other fuels, 0.8 percent; and, restaurant and miscellaneous goods and services, 2.5 percent.
Similarly, core inflation increased further to 3.3 percent in July 2020 from 3.0 percent in the previous month and 3.2 percent in July last year.
Meanwhile, the inflation for the food index at the national level continued to decelerate.It posted 2.5 percent in July from 2.7 percent in the previous month. Food inflation was registered at 1.7 percent in July 2019.
Earlier, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said inflation would continue to be benign amid the current health crisis, giving monetary authorities ample policy space.
Amid the onslaught of COVID-19 pandemic, the BSP saw the need to remain proactive in easing its monetary policy stance. Following the 75-basis-point cut policy interest rate in the first quarter, the BSP reduced it again by 50 basis points each in April and in June.
The cumulative reduction of 175 basis points since February brought the overnight reverse repurchase rate to a record low of 2.25 percent.
Furthermore, to help ensure sufficient domestic liquidity in the financial system, the BSP reduced the reserve requirement ratios for larger banks and quasi-banks. The BSP also allowed an alternative mode
of compliance with reserve requirements via new loans to encourage lending to micro, small, and medium enterprises and other affected firms.