Philippine Central Bank Chief Sees 50bps in Rate Cuts Ahead

(Bloomberg) --

Philippine central bank Governor Benjamin Diokno said he expects to cut interest rates by another 50 basis points this year, with the timing dependent on economic data.

“Until the end of the year, it's around 50 basis points,” Diokno told Bloomberg in an interview on Monday, when asked if he was open to lowering borrowing costs further. “If we do 50 basis points, we'll make it clear that this is the end of the easing period for this year to give banks time to adjust.”

Philippine policy makers are monitoring inflation numbers due Tuesday and economic growth data Thursday, as well as signs of further escalations in U.S.-China trade tensions, Diokno said in Manila.

“We'll be guided by the widest available economic and market data,” he said.

Cut Coming?

Bangko Sentral ng Pilipinas left its benchmark interest rate unchanged in June after a 25-basis-point cut in May as it takes what it calls a prudent approach to easing monetary policy. Most economists surveyed by Bloomberg predict the bank will cut rates by another 25 basis points to 4.25% Thursday after the U.S. Federal Reserve lowered borrowing costs last week.

Diokno said inflation will average 2.6% this year and 2.9% in 2020, down from previous projections of 2.7% and 3%, respectively. July inflation likely slowed to 2.4%, according to a Bloomberg survey of 23 economists.

Diokno's comments are “a very clear signal we haven't seen before,” said Robert Dan Roces, an economist at Security Bank Corp. in Manila. “We have this expectation to pump-prime growth for the rest of the year.”

Inflation below the midpoint of the central bank's 2%-4% target band and a stable currency give policy makers room to provide stimulus, after growth slowed to its weakest level in four years in the first quarter.

Subdued Inflation

Subdued consumer prices can boost private spending, which accounts for about 70% of the Philippine economy. Gross domestic product probably grew 5.9% in the second quarter, a separate Bloomberg survey showed.

Security Bank's Roces, who forecasts a 25-basis-point rate cut Thursday, said a one-time reduction of a half-percentage-point could be on the table later if the Bangko Sentral decides to keep policy unchanged this week.

“It's better to have this guidance so markets will be prepared,” he said.

The peso fell as much as 0.8% against the dollar Monday, paring its year-to-date gain to 1.5%. The local currency is the third best performer in Asia this year, behind the baht and yen.

--With assistance from Clarissa Batino.

To contact the reporter on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

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