The Philippine central bank is the latest to join an easing monetary policy spree in Asia, reducing its key interest rate amid easing price pressures while hinting at another rate cut in the future.
The Bangko Sentral ng Pilipinas cut the interest rate on the overnight reverse repurchase facility by 25 basis points to 4.25%. The interest rates on the overnight deposit and lending facilities were reduced accordingly to 3.75% and 4.75%, respectively.
The decision came as the country reported second-quarter GDP growth of 5.5%, down from 5.6% in the first quarter and 6.2% in the second quarter of 2018. The central bank maintained its "firm" growth outlook amid a projected recovery in household and the accelerated implementation of infrastructure projects.
Inflation eased to 2.4% in July from 2.7% in June, marking its lowest level since January 2017. The central bank trimmed its inflation forecast for 2019 to 2.6% from 2.7% and to 2.9% from 3.0% for 2020, said Nicholas Mapa, Philippines senior economist at ING.
The central bank said inflation is likely to settle within its target of 3%, plus or minus 1 percentage point, for 2019 to 2021. It added that the risks to the inflation outlook remain "broadly balanced" through 2020 but are tilted to the downside for 2021.
"The benign inflation outlook provides room for a further reduction in the policy rate as a pre-emptive move against the risks associated with weakening global growth," according to the central bank.
The central bank is expected to reduce policy rates further by 25 basis points at its September meeting, given previous remarks on easing from BSP Governor Benjamin Diokno, said Mapa.
Mapa also forecast the central bank to reduce reserve requirements in the fourth quarter.
The Reserve Bank of India and the Reserve Bank of New Zealand yesterday delivered larger-than-expected rate cuts, while the Bank of Thailand stunned markets with a surprise rate cut.