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Economy

Philippines cuts key rate for third time this year

Economist sees room for further easing amid slowing economy

The Bangko Sentral ng Pilipinas on Sept. 26 cut 25 basis points off its benchmark rate, which now stands at 4%.   © Reuters

MANILA -- The Philippine central bank on Thursday slashed its benchmark rate for a third time this year in the face of decelerating inflation and a slowing domestic economy.

The Bangko Sentral ng Pilipinas reduced its key interest rate by 25 basis points to 4%, in line with a Reuters poll. The decision follows the U.S. Federal Reserve's move last week to lower the cost of borrowing amid a trade war with China that is helping to stoke fears of a global economic slowdown.

"The monetary board's decision is based on its assessment that price pressures have eased further since the previous meeting," central bank Gov. Benjamin Diokno said.

Inflation stood at 1.7% in August, the lowest reading in nearly three years. "Inflation is likely to settle within the lower half of the target band of 3% plus-minus 1 percentage point for 2019 up to 2021," Diokno said. "Inflation expectations also remain well anchored within the inflation target range."

Robert Dan Roces, chief economist at Security Bank in Manila, believes the central bank has room for further easing.

"With the latest cut, BSP still has a significant policy space due to a 175 bps total rate hike from last year, giving the central bank enough policy leeway to support the economy for the rest of 2019 and beyond, should government spending fail to revive growth," the economist said.

The Philippine economy grew 5.5% in the second quarter, its slowest pace in four years and below the government target range of 6% to 7% as delays in passing the budget crimped state spending.

"Prospects for global economic growth are likely to remain weak, owing mainly to uncertainty over trade policies," Diokno said, adding that the easing "will support economic growth and reinforce market confidence."

The central bank shaved a total of 50 basis points from its benchmark rate at its two previous meetings, in May and August. The latest move highlights a shift in monetary policy following a tightening spree last year, when the key rate was raised by 175 basis points to 4.75%, the highest level in a decade, to tame inflation.

The BSP's move is part of a global easing wave. In addition to the U.S. Fed, the European Central Bank early this month cut its deposit rate by 10 basis points to a record low of minus 0.5%. And Indonesia's central bank on Sept 19 trimmed its key rate for a third time in as many months.

Researcher Ella Hermonio contributed to this report.

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