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Philippines Cuts Key Interest Rate As GDP Growth Eases To 4-year Low

philippinescentralbank nov15 09may19 lt

The Philippines central bank unexpectedly cut its key interest rate in May, after official data showed that the economic growth was the weakest in four years in the first quarter of this year.

The Monetary Board, led by Governor Benjamin Diokno, decided to slash the overnight reverse repurchase facility rate by 25 basis points to 4.5 percent, a statement from the Bangko Sentral ng Pilipinas said Thursday. Economists had expected the bank to leave the rate unchanged.

In November, the bank had raised its benchmark interest rate by 25 basis points to 4.75 percent.

The latest reduction of key rate was the first since 2016, when it was lowered following some operational changes.

This week, Malaysia and New Zealand cut their key interest rates, while Australia and Thailand left them unchanged.

Earlier on Thursday, official data showed that the Philippine economy grew just 5.6 percent in the first quarter, which was the weakest pace since 2015.

"The Monetary Board's decision is based on its assessment that the inflation outlook continues to be manageable, with easing price pressures owing to the decline in food prices amid improved supply conditions," the BSP said.

Governor Diokno told reporters that policymakers will discuss cutting its reserve requirement ratio soon.

The bank forecast inflation to settle within the target range of 3.0 percent ± 1.0 percentage point for both 2019 and 2020.

"The risks to the inflation outlook remain broadly balanced for 2019 amid risks of a prolonged El Niño episode and higher-than-expected increases in global oil prices," the bank said.

"For 2020, the risks continue to lean toward the downside as weaker global economic activity could temper commodity price pressures."

Headline inflation eased to 3 percent and core price growth slowed to 3.4 percent in April.

"Given the subdued outlook for inflation and the dovish nature of today's comments from the BSP, policy easing this year is likely to be more aggressive than we previously thought," Capital Economics economist Alex Holmes said.

"We are now expecting two additional cuts before the end of the year."

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