* Philippine c.bank cuts policy rate by 25 bps to 4.25%
* C.bank has room for further easing - governor
* C.bank revises down 2019, 2020 inflation forecasts
* Q2 GDP +5.5% y/y vs +5.6% in Q1 (Reuters poll +5.9%)
* Q2 growth weakest in 17 quarters
(Recasts lead, adds details and comments of c.bank and
economist)
By Neil Jerome Morales and Enrico Dela Cruz
MANILA, Aug 8 (Reuters) - The Philippine central bank cut
its benchmark interest rate on Thursday and kept the door open
for further easing to buttress the economy after growth slipped
to its weakest in 17 quarters, hurt by tepid government spending
and private sector investment.
The Bangko Sentral ng Pilipinas (BSP) reduced the rate on
its overnight reverse repurchase facility PHCBIR=ECI by 25
basis points, its second this year, to 4.25%. The move was
correctly predicted by all 10 economists in a Reuters poll.
The BSP left the reserve requirement ratio for banks at 16%
following a 200 basis points phased reduction through July.
"The benign inflation outlook provides room for further
reduction in the policy rate as a pre-emptive move against the
risks associated with weakening global growth," BSP Governor
Benjamin Diokno told a news conference.
Inflation is now expected to average 2.6% this year and 2.9%
next year, the central bank said, down from its previous
estimates of 2.7% and 3.0%, respectively. Both forecasts are
well inside its 2%-4% target for both years.
The Southeast Asian nation's 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. On a seasonally adjusted
basis, the economy grew 1.4 percent, faster than the downwardly
revised 0.6% gain in the previous quarter. "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 earlier
on Thursday.
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 targeted an economic expansion 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,
Pernia 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.
FURTHER EASING
Economists widely expect the central bank will further
reduce interest rates and banks' reserve requirements later this
year as easing inflation gives policymakers more room to support
growth.
"Further easing of local monetary policy remains possible in
the coming months after weaker GDP data," said Michael Ricafort,
an economist at RCBC in Manila.
Ricafort sees another cut of 25-50 bps by year-end, as well
as a 100 basis point reduction in banks' reserve requirement
from the current 16%.
The BSP 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.
However, with inflation no longer a worry, the central bank
began to unwind its tighter policy with a quarter-point rate cut
in May, the first since October 2012, to shore up the economy
against risks including simmering U.S.-Sino trade tensions.
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.
The Philippine central bank cut its key policy rates in step
with the global monetary easing trend as financial markets and
exports are buffeted by the U.S.-China trade war.
The U.S. Federal Reserve cut interest rates last week, amid
slowing global growth. On Wednesday, central banks in New
Zealand and India surprised markets with larger than expected
rate cuts, while Thailand unexpectedly cut its benchmark for the
first time since 2015. The peso strengthened to 52.04 against the dollar from
Wednesday's close of 52.32 after the policy decision, while the
benchmark stock index .PSI ended 0.04% lower.
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(Editing by Jacqueline Wong)