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NEWS UPDATES 16 May 2009

Philippine central bank mulls rate cut, watches recovery signs

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The Philippine central bank said it will look for signs of economic recovery in first-quarter growth data due later this month as it considers whether a fifth interest-rate cut is needed, reported Bloomberg news.

“We continue to have a bias towards easing, but we’re carefully watching for any tentative signs of recovery and the impact of such a recovery on the outlook for inflation,” Deputy Governor Diwa Guinigundo said in an interview in Manila Friday.

“First-quarter growth will tell us how the economy is absorbing the liquidity that has been released since late last year.”

Bangko Sentral ng Pilipinas has cut its benchmark overnight borrowing rate by 1.5 percentage points to 4.5 percent as inflation and growth slowed amid the global recession.

The central bank says it still has room to cut borrowing costs even as neighbors including Malaysia and South Korea pause in anticipation of an economy recovery.

“I’m a believer that rate cuts are over for now,” said Antonio Espedido, treasurer at China Banking Corp. in Manila. “The central bank may take some time to assess the economy before they make any further move.”

The Philippine government forecasts 2009 economic growth may slow to as little as 3.1 percent, the weakest in eight years, as exports slump. Growth may have slowed to a range of 2.1 percent to 3.1 percent in the first quarter after a 4.5 percent expansion the previous three months, Economic Planning Secretary Ralph Recto said last month.

Still, consumer confidence in the Philippines was the third highest among 14 countries in the Asia Pacific region, the Philippine Daily Inquirer reported today, citing a Nielsen survey conducted from March 19 to April 2.

Remittances sent home by citizens abroad, which account for about 10 percent of the economy, rose to a record in March, a report showed Friday.

“Domestic demand remains fairly robust based on demand for money and credit, based on money supply and loan growth,” Guinigundo said. “People continue to use money and borrow from banks to finance economic activities.”

Policy makers next meet on May 28 to decide on borrowing costs, the same day the government will report first-quarter economic growth data.

In addition to cutting interest rates, the central bank has also reduced the amount of cash banks must set aside as reserves and increased the amount of money lenders can borrow from the central bank in the past six months.


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