World News

Philippine central bank to resume cutting rates despite rising prices: Reuters poll

MANILA (Reuters) – The Philippine central bank is expected to cut interest rates on Thursday, taking advantage of benign inflation to buttress the economy against the negative impact of the spreading virus outbreak, a Reuters poll showed.

Nine of 11 economists surveyed said the central bank will cut the rate on its overnight reverse repurchase facility <PHCBIR=ECI> by 25 basis points to 3.75% even if inflation likely quickened for a third straight month in January.

The two dissenters expected no change in rates.

The central bank kept rates on hold at its meetings in November and December as the outlook improved on the back of higher government spending and strong domestic demand.

January inflation data on Wednesday will probably show the consumer price index rose 2.8% from last year, higher than the previous month’s 2.5% due to weather-related price spikes, but still inside the central bank’s 2%-4% comfort range.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said last week the central bank was still eyeing at least a 50 basis point cut in policy rates this year to further unwind the total 175 basis points of rate hikes in 2018 to control red-hot inflation.

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% last year, 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%. At least one economist in the poll expects the central bank to announce another 200 bp cut in the RRR on Thursday, on top of the rate cut.

The government has set a 6.5%-7.5% growth target for the year, but disruption caused by the coronavirus outbreak which began in China and is spreading to other countries poses risks to Manila’s growth outlook.

A 44-year-old Chinese man has died of the new coronavirus in the Philippines, the first fatality outside of China, prompting tighter travel restrictions for both Filipinos and foreigners.

Travel and trade restrictions introduced by various governments to control the spread of the coronavirus were expected to deliver a short, sharp blow to both Chinese and global economic activity for the first quarter of this year.

With China being among the Philippines’ top trading partner and second top origin for travelers to the Southeast Asian nation, economists expect Philippine tourism and trade to take a hit.

“In the face of this impending disruption to the world economic recovery, what the Philippine economy may need is a shot in arm and not an additional unnecessary handicap,” said Nicholas Mapa, senior economist at ING bank.

(Reporting by Karen Lema; Editing by Jacqueline Wong)