Philippines cuts rate, mulls easing reserve ratio to bolster economy

Bloomberg

The Philippine central bank cut its benchmark interest rate and will consider easing the reserve ratio for lenders next week to boost economic growth from a four-year low.
Bangko Sentral ng Pilipinas lowered the overnight borrowing rate by 25 basis points to 4.5%, the first reduction since an operational adjustment to the rate in 2016. The Philippines joins Malaysia and New Zealand in easing monetary policy this week amid low inflation pressure and growing global risks.
Governor Benjamin Diokno, who took office in March, is reversing tack after 175 basis points of rate hikes last year. Inflation has eased back into the 2% to 4% target, while economic growth has taken a knock after budget delays this year. Diokno has pointed to weaker global growth as a possible downside risk to inflation and the Philippine economy, which expanded at a four-year low of 5.6% in the first quarter.
Any further move on rates will be “data-dependent,” with policy makers monitoring global and domestic econo-mic conditions, Diokno told reporters.
The BSP didn’t lower the reserve requirement ratio for lenders from 18%, as eight of 10 economists in a Bloomberg survey had expected. Diokno said officials will discuss a proposal to lower the ratio at a meeting next week.
“The weaker GDP print sealed the case for easing,” said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore. “It looks now like an RRR cut could be on tap, or at least some serious discussions on this next week. Further policy cuts sound now to be data-dependent, but I think there is scope for easing given the inflation trajectory.”
The BSP lowered its inflation forecast for this year to 2.9% from 3%, while raising its 2020 projection slightly to 3.1%. Deputy Governor Diwa Guinigundo told reporters that “inflation has started to be firmly settled within that target of 2% to 4%.” Policy makers across the region are turning more dovish in the face of low inflation and weaker global growth, with India lowering rates twice this year and Malaysia and New Zealand easing earlier this week.