Philippines mulls rate cut to spur demand after scandal hit

[MANILA] The Philippine central bank will consider another reduction in the benchmark interest rate next month to help spur demand, its top official said, after the economy was hit by an ongoing corruption scandal.

“The demand is affected, just like investor sentiment,” Bangko Sentral ng Pilipinas (BSP) governor Eli Remolona said on Monday (Nov 24) on the sidelines of a BSP forum in the central Philippine province of Bohol. Further easing can help boost demand to support the economy, he said.

Inflation expectations are more or less anchored, and the current picture would give the central bank confidence should it decide to further cut its key rate, Remolona said at a separate briefing.

The central bank in October unexpectedly reduced its key rate by a quarter percentage point and signalled it may ease further, warning the economic outlook has deteriorated amid the widening corruption scandal involving public funds meant for flood infrastructure projects.

The South-east Asian economy grew at its slowest pace in four years in the last quarter, after the controversy hampered state spending and hit consumer confidence.

When asked if the magnitude of the rate cut will likely be small, Remolona said yes, adding that a 50-basis point reduction is unlikely. The policymaking Monetary Board is scheduled to meet on Dec 11.

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He also said that there’s no urgency in further reducing banks’ reserve requirement ratio.

Asked about the peso, which fell to a record low last month amid the graft scandal, Remolona said the central bank does not target a specific level for the currency, and that it only intervenes when the market “is going crazy”. BLOOMBERG