Philippine central bank steps up bid to lift growth, cuts rates a third time

FILE PHOTO: A security guard stands beside a logo of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) posted at the main gate in Manila, Philippines April 28, 2016. REUTERS/Romeo Ranoco/File Photo

By Karen Lema and Neil Jerome Morales

MANILA (Reuters) – The Philippine central bank cut its benchmark interest rate for a third time this year on Thursday, to bolster a slowing economy against the risk of weakening global growth.

The Bangko Sentral ng Pilipinas (BSP) reduced the rate on its overnight reverse repurchase facility <PHCBIR=ECI> by 25 basis points to 4.0%.

Ten out of 11 economists polled by Reuters had expected the central bank to use the room afforded by slowing inflation to cut rates on Thursday.

The central bank kept the reserve requirement ratio (RRR) at 16%.

Asked if Thursday’s cut would be the last for 2019, a bank official said any future moves “remain data dependent”.

Growth in the Southeast Asian nation slipped to its weakest in 17 quarters in April-June, hurt by tepid government spending and private sector investment, with growing risks the economy will be hit by the U.S.-China trade war.

In August, Governor Benjamin Diokno had prepared the market for more policy easing when he said the central bank will make another 25 basis point rate cut before the end of the year.

About Thursday’s cut, Diokno told a news conference “The Monetary Board believes that the benign inflation outlook provides room for further reduction in policy rate to support economic growth and reinforce market confidence.”

Easing inflation has allowed the central bank to reverse some of its policy tightening last year. It trimmed its key rate a total of 50 basis points in May and August.

Ahead of Thursday’s policy meeting, the central bank lowered its inflation forecast for 2019 to 2.5% from 2.6%.

It kept its inflation forecasts for 2020 and 2021 at 2.9%.

All forecasts are well within the central bank’s 2%-4% target for those years.


Euben Paracuelles, economist at Nomura, said his forecast for the rest of 2019 is “they’re done on policy rate cuts” and the upside risks on 2020 inflation seem to support that.”

“But it doesn’t mean the end of policy easing just yet. RRR cuts cannot be ruled out before year end, and fiscal policy is swinging more to an expansionary stance,” he said.

Capital Economics said that with growth “likely to disappoint and price pressures set to remain subdued, we expect more cuts over the coming quarters.”

The Philippines is targeting an economic expansion of 6-7% in 2019, but hopes of achieving that goal dimmed after the economy only grew a weaker-than-expected 5.5% in the second quarter.

But the authorities are not giving up on that target, saying a rebound in government spending in the second half will underpin growth in the Philippines, still one of Asia’s fastest growing economies.

After Sept. 26, the central bank has two more policy meetings scheduled this year.

(Reporting by Karen Lema and Neil Jerome Morales; Editing by Jacqueline Wong and Richard Borsuk)

Leave a Comment

Your email address will not be published. Required fields are marked *