August 8, 2019 / 4:11 AM / 18 days ago

Philippine central bank poised to cut rates as second-quarter GDP growth slows

MANILA (Reuters) - The Philippine central bank is expected to resume cutting interest rates on Thursday to buttress the economy after growth slipped to its weakest in 17 quarters, hurt by tepid government spending and private sector investment.

A security guard stands beside a logo of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) posted at the main gate in Manila, Philippines April 28, 2016. REUTERS/Romeo Ranoco/File Photo

Gross domestic product (GDP) grew 5.5% in the April-June period from a year earlier, the statistics agency said, missing the median forecast for 5.9% growth tipped in a Reuters survey of 10 economists.

“This means that we will have to grow by an average of at least 6.4% in the second half of the year to reach the low end of the full-year growth target of 6-7% in 2019,” Economic Planning Secretary Ernesto Pernia told a news conference.

“Governor Ben Diokno is a pro-growth central bank governor and he will take the cue in terms of how to stimulate the economy with monetary policy,” he said.

Pernia attributed the continuing weak performance of the domestic economy to the delayed passage of the 2019 national budget and the slowdown in government spending.

The Philippines has estimated the economy will expand in a range of 6-7% in 2019, 6.5-7.5% in 2020 and 7-8% in 2021 and 2022.

Growth could have risen by one percentage point more in the first and second quarters if the budget had been passed on time, he said, adding the government is hopeful of achieving a 6-6.5% pace of expansion this year.

The Philippines remains one of the fastest growing economies in Asia, but rising downside risks, including simmering U.S.-Sino trade tensions, put this year’s growth target at risk and would likely justify further policy easing, economists say.

After the data, the Philippine peso weakened by 0.14% while the broader stock index rose as much as 0.3%, recouping some of the week’s sell-off.

DEEPER RATE CUTS?

Bangko Sentral ng Pilipinas is expected to cut its key policy rates later on Thursday, in step with the global monetary easing trend as financial markets and exports are buffeted by the U.S.-China trade war.

The Philippine central bank raised rates by a total of 175 basis points last year to rein in inflation, which peaked at a near-decade high of 6.7% in September and October, but price pressures have since eased. It cut key rates by 25 basis points in May.

Annual inflation eased to a two-year low of 2.4% in July, bringing year-to-date average inflation to 3.3%, comfortably within the central bank’s 2%-4% percent target this year.

Economists believe sluggish exports that have dragged on the economy and slower government spending increase the odds of further monetary easing.

“A more aggressive rate cut of 50 basis points by the central bank this afternoon now looks likely,” Alex Holmes, Asia economist of Capital Economics, said in a research note.

A woman carrying a baby passes by a construction of the Metro Rail Transit (MRT) on Commonwealth Avenue in Quezon City, metro Manila, May 23, 2018. REUTERS/Dondi Tawatao/File Photo

The “disappointing” slowdown would prompt the central bank to reduce rates by at least 25 basis points to 4.25%, said Michael Ricafort, economist at RCBC in Manila.

The central bank is set to announce its policy decision at around 0800 GMT.

The U.S. Federal Reserve cut interest rates last week, amid slowing global growth. On Wednesday, central banks in New Zealand, India and Thailand surprised markets with larger than expected rate cuts.

Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Jacqueline Wong

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