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Philippines Takes ‘Prudent Pause’ on Rates as Growth Revives

Philippines Leaves Benchmark Rate Steady After Economy Rebounds

(Bloomberg) --

The Philippines central bank kept its key interest rate unchanged to give previous cuts time to take effect, but said it could lower rates next year if inflation remains muted.

The decision to keep rates steady at 4% -- predicted by all 19 economists surveyed by Bloomberg -- comes after economic growth rebounded to 6.2% in the third quarter from a four-year low of 5.5% in the three months through June. The bank will now take a “prudent pause” to see how previous easing steps are filtering through the economy, Deputy Governor Francis Dakila told reporters after the decision.

“If inflation is still quite low next year and is coming from the demand side, then that may warrant a monetary policy response,” he said.

Bangko Sentral’s hold Thursday contrasts with Bank of Thailand’s decision last week to cut its benchmark rate to a record low. Bank Indonesia, which has cut rates by a full percentage point since June, is set to meet next week.

“With growth set to disappoint and inflation likely to remain weak, we expect more easing next year,” Capital Economics economist Alex Holmes wrote in a research note. “We think today’s hold marks a pause rather than an end to the easing cycle and we are sticking with our forecast for a further 50 basis points of cuts in 2020.”

Philippines Takes ‘Prudent Pause’ on Rates as Growth Revives

Governor Benjamin Diokno had signaled earlier this month that monetary easing is over for the year, saying authorities have done “more than enough” to support the economy. The central bank has cut its benchmark rate by 75 basis points since May and has announced 4 percentage points of cuts in banks’ reserve requirement ratio, another stimulatory step.

What Bloomberg’s Economists Say:

Bangko Sentral ng Pilipinas kept its benchmark rate steady at its November meeting, and signals from policy makers suggest it will stay on hold at this year’s last decision in December... After a pause to assess the impact of its moves so far, we think that benign inflation, below-potential growth, and a significant slowdown in lending will allow the central bank to proceed with its easing cycle in early 2020.

Justin Jimenez, economist

Consumer prices rose just 0.8% last month, the slowest pace since April 2016. While that’s likely the low point, the central bank will monitor how fast inflation is moving toward the midpoint of the bank’s 2%-4% target range, Dakila said.

The central bank lowered its inflation forecast for 2019 to 2.4%, from 2.5% previously, and forecast the consumer price index to rise 2.9% next year, with risks tilted to the upside.

Diokno “has kept the mantra of ‘data dependency’ in guiding his policy decisions and we expect him to monitor inflation forecasts and the economy’s overall growth momentum going forward,” Nicholas Mapa, a senior economist at ING Groep NV in Manila, said in a note after the decision. “Given a possible miss on the growth objective, we expect Governor Diokno to come out swinging in 2020 with up to 50 basis points worth of policy rate cuts to help bolster growth momentum.”

--With assistance from Tomoko Sato, Clarissa Batino, Andreo Calonzo, Claire Jiao and Cecilia Yap.

To contact the reporters on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net;Ditas Lopez in Manila at dlopez55@bloomberg.net

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, Michael S. Arnold, Clarissa Batino

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