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Philippines cuts interest rates after sharp growth slowdown

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The Philippines central bank cut its benchmark interest rate amid a sharp slowdown in inflation and economic growth, joining Malaysia and New Zealand in easing monetary policy this week as global risks mount.

[MANILA] The Philippines central bank cut its benchmark interest rate amid a sharp slowdown in inflation and economic growth, joining Malaysia and New Zealand in easing monetary policy this week as global risks mount.

Bangko Sentral ng Pilipinas (BSP) lowered the overnight borrowing rate by 25 basis points to 4.5 per cent, the first reduction since an operational adjustment to the rate in 2016. The decision was predicted by 13 of 23 economists surveyed by Bloomberg.

Central bank 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 per cent to 4 per cent 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 Philippines economy, which expanded at a four-year low of 5.6 per cent in the first quarter.

The central bank lowered its inflation forecast for this year to 2.9 per cent from 3 per cent, while raising its 2020 projection slightly to 3.1 per cent.

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"Inflation has started to be firmly settled within that target of 2 per cent to 4 per cent" and forecasts are closer to the central bank's projections, Deputy Governor Diwa Guinigundo told reporters on Thursday.

Any further move on rates will be "data-dependent", with policy makers monitoring global and domestic economic conditions, Mr Diokno told reporters.

The BSP didn't lower the reserve requirement ratio for lenders from 18 per cent, as many economists had expected. Mr Diokno said that will be discussed by officials at the central bank next week.

Policymakers 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. The prospect of a full-blown trade war between the US and China is also weighing on the global outlook.

The Philippine peso has gained 0.6 per cent against the US dollar so far this year after losing 5 per cent in 2018. It closed 0.4 per cent lower at 52.30 per dollar on Thursday, while the benchmark stock index slid more than 2 per cent, the biggest drop since Feb 28.

BLOOMBERG