Philippine central bank cuts key rate in unscheduled move


BSP Governor Benjamin Diokno. - Bloomberg

MANILA (Bloomberg): The Philippine central bank cut its benchmark interest rate in an unscheduled move, seeking to keep the economy afloat amid the coronavirus outbreak.

The Bangko Sentral ng Pilipinas (BSP) lowered its key rate by 50 basis points to 2.75 per cent, Governor Benjamin Diokno said in a mobile-phone message to reporters on Thursday (April 16).

Policy makers were scheduled to make their next interest rate decision on May 21.

The central bank also cut overnight lending and deposit rates by 50 basis points each. The key rate is now at its lowest since the bank adopted an interest-rate corridor system in 2016.

With the country's main island under lockdown since mid-March, the central bank has accelerated its stimulus in recent weeks as the government readies further fiscal support.

Diokno in recent days had indicated his willingness for some sort of off-cycle easing, including an adjustment to banks' reserve ratios or a bigger-than-anticipated cut to the benchmark rate.

"Today's 50 basis points in one go was larger than we thought," said Angela Hsieh, an economist at Barclays Bank Plc in Singapore.

"Given the outbreak is still developing and the hit to the economy is likely to be severe, we think the BSP still has room to do more."

The Philippines joins a wave of emerging-market central banks in delivering surprise moves. South Africa unexpectedly cut its benchmark rate earlier this week, while Indonesia bucked expectations in deciding to keep its key rate unchanged.

President Rodrigo Duterte has extended the widespread restrictions on movement, which have idled the economy and cost more than 1 million jobs, through April 30.

The country's finance minister has said zero economic growth this year is now the best-case scenario, even with massive spending to counter the pandemic that will bloat the budget deficit.

Justin Jimenez, a Bloomberg economist, said the central bank's unscheduled rate cut underscores the serious and urgent pressures on growth.

"Looking ahead, we think BSP could further cut the reserve requirement, following a 200 bps cut in late March. That could happen before the central bank's next scheduled meeting on May 21."

The country's benchmark stock index, which had already closed for the day before Diokno's announcement, fell 7.1 per cent on Thursday, its biggest drop since March 19.

The peso closed at 50.80 per dollar, 0.3 per cent lower from the previous day, posting its biggest decline in two weeks.

Prior to Thursday's announcement, the central bank had cut its benchmark interest rate by 75 basis points this year and slashed the reserve ratio by 2 percentage points. - Bloomberg

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