Philippines cuts key rate again as inflation stays below target

[MANILA] The Philippine central bank lowered its key interest rate by a quarter point for the second time this year, as widely expected, after inflation remained below target.

The Bangko Sentral ng Pilipinas (BSP) reduced its overnight target reverse repurchase rate to 5.25 per cent on Thursday (Jun 19), matching the forecast by 29 of 30 economists in a Bloomberg survey. One saw a hold.

The BSP stayed on an easing path after inflation slowed further in May, staying below the central bank’s 2 per cent-4 per cent goal for a third month. The move is in line with governor Eli Remolona’s signal last month for at least two more rate cuts this year, continuing a cycle of reductions that started in August.

Oil price gains due to the Israel-Iran conflict, however, could stoke inflation in the nation heavily reliant on fuel imports. The Philippine peso has also weakened amid global risk aversion. Remolona said on Wednesday that it’s futile to intervene in the currency market to support the peso that’s fallen nearly 3 per cent against the dollar this month – the biggest loser in Asia.

The move comes a day after Bank Indonesia paused to stabilise its currency in the face of the trade war and Middle East tensions. The Federal Reserve similarly held its benchmark rate, with officials saying uncertainty over the economic outlook was still high.

The rate cut will nonetheless help support the South-east Asian economy, which expanded slower than expected last quarter, partly due to weaker investment growth as US President Donald Trump’s tariff threats hurt global sentiment. BLOOMBERG