Philippines Central Bank Chief Says Better to Cut Rates Soon

(Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.

Philippine central bank Governor Benjamin Diokno said it would be better to cut interest rates sooner rather than later, a signal that policy makers will likely lower borrowing costs Thursday.

Since monetary policy works with a lag and the central bank is mindful of risks to global growth from the coronavirus outbreak, it’s preferable to act the “sooner the better,” Diokno said in an interview Wednesday in Manila.

Diokno chairs Bangko Sentral ng Pilipinas’s seven-member rate-setting board, which is expected to lower its key interest rate Thursday by 25 basis points to 3.75%, according to 17 of 25 economists in a Bloomberg survey. The others expect no change.

Reiterating previous guidance, the governor said he foresees another 50 basis points of rate cuts this year.

“We’re still looking at 50, so that we still have more space in the event of further deterioration in the economy,” Diokno said.

More Space

The governor has said the monetary authority still has space to unwind previous rate hikes, after it raised rates by a total of 175 basis points in 2018 and then cut by just 75 basis points last year as inflation slowed.

Given growth risks including spillovers from the coronavirus scare, the Philippines is “likely to cut rates in favor of boosting the economy, while acknowledging that the recent acceleration in inflation is within expectations,” said Sophia Ng, an analyst at MUFG Bank Ltd. in Singapore.

Diokno said he’s confident the Philippines can grow 6.5% this year, despite worries about how the coronavirus crisis will impact China’s economy and regional tourism. He said inflation in the Philippines will probably average 2.9% this year and next.

The central bank under Diokno “has always been supportive of growth,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “The two rate cuts we expect this year would have likely arrived with or without the coronavirus.”

Extra Boost

The Philippine economy is getting a boost from extra government spending carried over from 2019 and an ambitious infrastructure program that’s helping to spur investment. At the same time, inflation is accelerating, with consumer prices rising 2.9% in January, according to data out Wednesday.

The governor said the peso remains “very stable” and the central bank has “hardly” participated in the currency spot market.

“We’re really for a flexible exchange rate,” Diokno said.

The peso rose 0.3% against the dollar as of noon Thursday in Manila, paring its losses since the year began, while the country’s main stock index was up 0.9%.

--With assistance from Clarissa Batino and Ditas Lopez.

To contact the reporters on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net;Cecilia Yap in Manila at cyap19@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

©2020 Bloomberg L.P.