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Philippine central bank poised to cut rates as Q2 GDP growth slows

[MANILA] The Philippine central bank is expected to resume cutting interest rates on Thursday to buttress the economy after growth slipped to its weakest in 17 quarters, hurt by tepid government spending and private sector investment.

Gross domestic product (GDP) grew 5.5 per cent in the April-June period from a year earlier, the statistics agency said, missing the median forecast for 5.9 per cent growth tipped in a Reuters survey of 10 economists.

"This means that we will have to grow by an average of at least 6.4 per cent in the second half of the year to reach the low end of the full-year growth target of 6-7 per cent in 2019," Economic Planning Secretary Ernesto Pernia told a news conference.

"Governor Ben Diokno is a pro-growth central bank governor and he will take the cue in terms of how to stimulate the economy with monetary policy," he said.

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Mr Pernia attributed the continuing weak performance of the domestic economy to the delayed passage of the 2019 national budget and the slowdown in government spending.

The Philippines has estimated the economy will expand in a range of 6-7 per cent in 2019, 6.5-7.5 per cent in 2020 and 7-8 per cent in 2021 and 2022.

Growth could have risen by one percentage point more in the first and second quarters if the budget had been passed on time, he said, adding the government is hopeful of achieving a 6-6.5 per cent pace of expansion this year.

The Philippines remains one of the fastest growing economies in Asia, but rising downside risks, including simmering US-Sino trade tensions, put this year's growth target at risk and would likely justify further policy easing, economists say.

After the data, the Philippine peso weakened by 0.14 per cent while the broader stock index rose as much as 0.3 per cent, recouping some of the week's sell-off.

DEEPER RATE CUTS?

Bangko Sentral ng Pilipinas is expected to cut its key policy rates later on Thursday, in step with the global monetary easing trend as financial markets and exports are buffeted by the US-China trade war.

The Philippine central bank raised rates by a total of 175 basis points last year to rein in inflation, which peaked at a near-decade high of 6.7 per cent in September and October, but price pressures have since eased. It cut key rates by 25 basis points in May.

Annual inflation eased to a two-year low of 2.4 per cent in July, bringing year-to-date average inflation to 3.3 per cent, comfortably within the central bank's 2-4 per cent target this year.

Economists believe sluggish exports that have dragged on the economy and slower government spending increase the odds of further monetary easing.

"A more aggressive rate cut of 50 basis points by the central bank this afternoon now looks likely," Alex Holmes, Asia economist of Capital Economics, said in a research note.

The "disappointing" slowdown would prompt the central bank to reduce rates by at least 25 basis points to 4.25 per cent, said Michael Ricafort, economist at RCBC in Manila.

The central bank is set to announce its policy decision at around 0800 GMT (4pm SGT).

The US Federal Reserve cut interest rates last week, amid slowing global growth. On Wednesday, central banks in New Zealand, India and Thailand surprised markets with larger than expected rate cuts.

REUTERS