Philippines central bank chief says better to cut rates soon

[MANILA] Philippine central bank governor Benjamin Diokno said it would be better to cut interest rates sooner rather than later, a signal that policy makers will likely lower borrowing costs on Thursday.

Since monetary policy works with a lag and the central bank is mindful of risks to global growth from the coronavirus outbreak, it's preferable to act the "sooner the better," Mr Diokno said in an interview on Wednesday in Manila.

Mr Diokno chairs Bangko Sentral ng Pilipinas's seven-member rate-setting board, which is expected to lower its key interest rate Thursday by 25 basis points to 3.75 per cent, according to 17 of 25 economists in a Bloomberg survey. The others expect no change.

Reiterating previous guidance, the governor said he expects to cut rates by 50 basis points this year.

"We're still looking at 50, so that we still have more space in the event of further deterioration in the economy," Mr Diokno said.

More space

The governor has said the monetary authority still has space to unwind previous rate hikes, after it raised rates by a total of 175 basis points in 2018 and then cut by just 75 basis points last year as inflation slowed.

Given growth risks including spillovers from the coronavirus scare, the Philippines is "likely to cut rates in favour of boosting the economy, while acknowledging that the recent acceleration in inflation is within expectations," said Sophia Ng, an analyst at MUFG Bank in Singapore.

Mr Diokno said he's confident the Philippines can grow 6.5 per cent this year, despite worries about how the coronavirus crisis will impact China's economy and regional tourism. He said inflation in the Philippines will probably average 2.9 per cent this year and next.

"We don't have a problem hitting 6.5 per cent, despite this coronavirus," he said from his offices. "We're very confident" of reaching that growth pace.

Extra boost

The Philippine economy is getting a boost from extra government spending carried over from 2019 and an ambitious infrastructure programme that's helping to spur investment. At the same time, inflation is accelerating, with consumer prices rising 2.9 per cent in January, according to data out Wednesday.

The governor said the peso remains "very stable" and the central bank has "hardly" participated in the currency spot market.

The peso rose as much as 0.3 per cent against the US dollar on Thursday morning, paring its drop since the year began. The country's main stock index rose as much as 0.8 per cent on Thursday morning ahead of the rate decision.

BLOOMBERG