June 25, 2020 / 9:06 AM / 8 days ago

UPDATE 1-Philippine cbank surprises with big 50 bps rate cut to soften pandemic blow

* Benchmark RRP rate cut to record-low 2.25%

* Cbank says global growth outlook has worsened

* Cbank lifts 2020, 2021 inflation forecasts

* GRAPHICS: Philippines economy indicators interactive tmsnrt.rs/2nZqDWx (Adds quotes, more details, graphics)

By Neil Jerome Morales and Enrico Dela Cruz

MANILA, June 25 (Reuters) - The Philippine central bank unexpectedly cut its benchmark interest rate by another 50 basis points to a new low on Thursday, extending an aggressive policy easing cycle to cushion the economic blow from the coronavirus pandemic.

The cut was the fourth this year, and took the rate on the overnight reverse repurchase facility to 2.25%. The central bank has now slashed the rate by 175 bps since February.

Rates on the overnight deposit and lending facilities were likewise reduced to 1.75% and 2.75%, respectively.

Eight out of 12 economists in a Reuters survey had expected the central bank to keep the rate steady, while the other four had forecast a 25 bps cut.

“The Monetary Board decided that a further reduction in the policy rate amidst a benign inflation environment would help mitigate the downside risks to growth and boost market confidence,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said.

Activity has slowed due to a coronavirus-induced lockdown, while the outlook for global growth has deteriorated, he said.

The BSP forecast inflation to average 2.3% this year and 2.6% in 2021, higher than the April estimates of 2.0% and 2.45%, respectively, but well within the official target of 2%-4% for both years.

The BSP remains committed to deploying a full range of monetary instruments and regulatory relief measures as needed to support growth, Diokno said.

“The surprise cut is seen as a pre-emptive monetary easing measure needed most by the economy at this time and in the coming months,” said Michael Ricafort, economist at Rizal Commercial Banking Corp in Manila.

Further easing may be needed to prevent the economic contraction from deepening, Ricafort said.

The Philippine economy is expected to contract 3.8% this year, the Asian Development Bank (ADB) said last week.

“After the flurry of rate cuts and infusion of liquidity, today’s move may be the last from the BSP in 2020 with Diokno likely in favor of approximating positive real policy rates,” ING said in a note.

“Meanwhile, Governor Diokno will also likely hold back on reducing reserve requirements in the near term given that the financial system is swamped with liquidity with excess funds parked at BSP’s deposit facilities hitting roughly 1.3 trillion peso in June.”

Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Toby Chopra and Kim Coghill

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