The Bangko Sentral ng Pilipinas (BSP) is expected to reduce interest rates on lending and deposit facilities, according to BSP Governor Benjamin Diokno.
This came about with the cutting by the BSP Monetary Board last May 6 of the benchmark policy rate by 25 basis points to 4.5 per cent.
This the first rate cut since Governor Diokno took over the helm of the BSP.
Governor Diokno explained that the decision is based on the outlook that inflation would be manageable and would stay within the target band of 2 to 4 per ceent.
Lower rates generally create a positive multiplier effect on the economy. It usually means lower borrowing costs for consumers, including small businesses. In turn, consumers spend more. Demand for products and services likewise goes up.
However, these very same conditions may cause inflation to surge.
Some economists view the interest rate cut to be premature.