Philippines Cuts Key Interest Rate in Surprise to Economists

The Philippine central bank cut its key interest rate in a surprise move after the economy contracted more than expected in the third quarter.

Bangko Sentral ng Pilipinas lowered its benchmark rate Thursday by 25 basis points to 2.0%, as only five of 18 analysts in a Bloomberg survey expected. Thirteen had forecast the rate to remain on hold. The latest move brought the total rate reduction this year to 200 basis points.

The central bank’s decision came as a surprise for many economists who had expected the monetary authority to stay on hold while assessing the effectiveness of past easing steps. The bank also has implemented credit relief and other liquidity measures in response to the pandemic amid limited fiscal stimulus.

Philippines Cuts Key Interest Rate in Surprise to Economists

Central bank Governor Benjamin Diokno has made clear his view that monetary policy can’t do all the work in reviving the economy, and that fiscal stimulus will also be key. Gross domestic product shrank 11.5% in the three months to September compared to a year earlier, better than the second quarter’s 16.9% contraction but worse than economists’ estimates.

Jobs are being restored as the economy reopens, but consumers remain wary as Covid-19 cases continue to mount in Southeast Asia’s second-worst outbreak.

©2020 Bloomberg L.P.

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