By Karen Lema and Neil Jerome Morales
MANILA (Reuters) – The Philippine central bank trimmed its policy interest rate on Thursday to shield the economy from risks posed by a spreading coronavirus, adding it was prepared to loosen policy further to protect growth.
The central bank lowered the rate on its overnight reverse repurchase facility by 25 basis points to 3.75%, the fourth such move since it began reversing policy rate hikes in 2018 to lift economic growth.
“The manageable inflation environment allowed room for a preemptive reduction in the policy rate to support market confidence,” Bangko Sentral ng Pilipinas Governor Benjamin Diokno told a news conference.
Nine of 11 economists in a Reuters poll had expected the central bank to resume cutting interest rates on Thursday after keeping them on hold at its last two meetings. The two dissenters had predicted no change in policy rates.
The Philippines is bracing for the economic impact of the coronavirus outbreak which began late last year in the Chinese city of Wuhan. It has prompted various governments to impose travel and trade restrictions, which are expected to deliver a short, sharp blow to both Chinese and global economic activity.
The epidemic has killed 563 people, including a 44-year-old Chinese man in the Philippines, the first fatality outside of China, prompting tighter travel restrictions for both Filipinos and foreigners.
Earlier on Thursday, India’s central bank kept rates on hold but worries about the economic impact of the coronavirus outbreak has raised the chances of further monetary loosening across the region this year.
Diokno told a business form on Thursday he remained committed to reducing policy rates by 50 basis points this year. The central bank started to unwind a total 175 basis points of rate hikes in 2018 to control red-hot inflation last year.
The central bank said it has “sufficient” room to support growth with inflation expected to remain tame despite consumer prices climbing to an eight-month high of 2.9% in January.
This year’s inflation estimate was raised to 3.0% from 2.9% forecast in December to reflect upward price pressures from the African Swine Fever outbreak and supply shocks caused by bad weather. Next year’s estimate was kept at 2.9%.
The central bank’s decision was announced after the peso closed at 50.78 to the dollar on Thursday, firmer than the previous day’s close of 50.92.
Cooling price pressures had allowed the central bank to slash rates by a total 75 bps last year to support growth, which slid to an eight-year low of 5.9% in 2019, missing the low-end of the government’s 6.0%-6.5% expansion target.
It also cut banks’ reserve requirement ratio (RRR) by a total 400 bps last year to 14%. Diokno has said the RRR will be at a single digit level by the time he ends his term in 2023.
The government has set a 6.5%-7.5% growth target for the year.
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Source: Economy - investing.com
