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Economy

Philippine central bank cuts key interest rate to record low

Surprise move lowers benchmark to 2.25% to combat coronavirus slowdown

The central bank of the Philippines unexpectedly further lowered its policy rate cut key rate on Thursday.   © Reuters

MANILA -- The Philippine central bank on Thursday cut its key interest rate by 50 basis points to counter the economic slowdown brought on by the coronavirus pandemic.

The reduction brought the benchmark interest rate to a record low of 2.25%. The bank has cut rates by a total of 175 basis points so far this year.

In a Reuters poll before the Thursday announcement by the Bangko Sentral ng Pilipinas, eight of 12 economists surveyed said they expected the central bank to leave the policy rate unchanged.

"The monetary board observed that domestic economic activity has slowed with the enforcement of necessary protocols to slow the spread of the virus," central bank Gov. Benjamin Diokno said. "At the same time, the outlook for global growth has deteriorated further as considerable uncertainty still surrounds the extent of the health crisis."

Although countries, including Philippines, have begun to reopen their economies, a global recovery would likely be "protracted and uneven," making a case for continuing with measures to bolster economic activity and lend financial support, he said.

Philippines, which has endured one of the world's longest lockdowns to curb the spread of COVID-19, is bracing for its sharpest economic contraction in more than 30 years.

"The monetary board decided that a further reduction in the policy rate amidst a benign inflation environment would help mitigate the downside risks to growth and boost market confidence," Diokno said.

Analysts had mixed views about the central bank's next move.

"We doubt this will be the bank's last move," said Alex Holmes, Asia economist at Capital Economics, citing the lockdown's "massive impact on the economy."

ING Bank, however, is not expecting any further cuts this year. "The surprise rate cut by the [Philippine central bank] will likely sap some appreciation pressure for the peso in the near term, which has enjoyed relative strength in recent [weeks] buoyed by financial account inflows tied to the government's foreign borrowings," ING said in a note.

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