Jakarta

CENTRAL banks in Indonesia and the Philippines cut their benchmark interest rates to record lows, moves not expected by most analysts, as the two nations grapple with the worst coronavirus outbreaks in South-east Asia.

Bank Indonesia lowered its key rate Thursday by 25 basis points to 3.75 per cent, its first cut in four months, as 11 of 26 economists surveyed by Bloomberg predicted. Minutes later, Bangko Sentral ng Pilipinas cut by a similar amount to 2 per cent, as only five of 18 economists expected.

Policymakers in both countries pledged to keep policy supportive for growth, with Philippine central bank governor Benjamin Diokno saying he'd use all the tools in the bank's arsenal after a string of recent typhoons added to challenges facing the economy.

Recent gains in both currencies against the US dollar helped create a window for additional easing after months of holding rates steady.

"The two cuts today reflect that supporting economic recovery is top on the agenda, especially amid lingering virus cases and renewed lockdown in some individual economies that may affect demand," said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp in Singapore. "Recent currency strength has reduced concern over the implications of lower rates on FX levels."

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Previous cuts in Indonesia and the Philippines have had only limited success in boosting credit growth, as high numbers of daily infections keep businesses and consumers cautious. Each country has recorded more than 400,000 Covid-19 cases, the two largest outbreaks in South-east Asia.

The Indonesian rupiah fell 0.6 per cent to 14,155 against the US dollar as of market close. Indonesian stocks were up 0.66 per cent, posting their fifth straight day of gains.

Bank Indonesia's cut comes after South-east Asia's biggest economy contracted more than expected last quarter, falling into its first recession since the Asian financial crisis more than two decades ago. Indonesian policymakers hope the economy can eke out some growth in the fourth quarter, even though recent vital indicators - including consumer confidence, retail sales, imports and manufacturing - suggest that will be difficult.

"I can assure you that the economic recovery will continue," Bank Indonesia governor Perry Warjiyo said in announcing the decision. "We encourage banks and the business community to build optimism so the economic recovery can continue, and at a quick pace."

In the Philippines, many economists expected the monetary authority to stay on hold while assessing the effectiveness of past easing steps. The bank also has implemented credit relief and other liquidity measures in response to the pandemic amid limited fiscal stimulus.

"People will be much more likely to have confidence to get into the financial system again when interest rates are on the accommodative side," said Francis Dakila, deputy governor of the Philippine central bank. Thursday's cut "will help speed up process of recovery."

The peso closed down 0.2 per cent to 48.315 per US dollar to pare its gain on the year to 4.8 per cent, while the benchmark stock index dropped 0.8 per cent. The rate cut could further boost Philippine local bonds, which are the top performers in Asia so far this year with a 17 per cent advance.

Both central banks "likely used the opportunity of firming currencies, low inflation, the passage of US elections and lower market volatility overall, to help provide further support to the nascent recovery that is already taking shape in both economies," said Mitul Kotecha, a senior emerging markets strategist at TD Securities in Singapore. BLOOMBERG