Philippines cuts rates again on 'global headwinds'

The Philippine central bank cut interest rates on Thursday for the third time this year, citing the domestic economy's need for extra help amid an uncertain global climate.

The bank lowered the key overnight lending rate by 25 basis points to 5.75 percent and the overnight borrowing rate by the same portion to 3.75 percent.

While inflation is likely to settle near the lower end of the government's 3.0-5.0 percent target range for this year and next, the policy-setting monetary board believes global economic prospects are likely to remain weak, it said.

"While the Philippine economy can rely on the resilience of domestic spending to sustain growth, additional policy support would serve as a buffer against strong global headwinds," it said in a statement.

"On balance therefore the benign inflation outlook provides room for a reduction in policy rates as a pre-emptive move against the risks associated with the global slowdown."

Lower interest rates provide easier access to capital for business, which observers say is crucial for job creation in an economy where a fourth of the labour force is out of work or underemployed.

The latest central bank action followed two equivalent cuts to the two key rates on January 19 and March 1.

The economy grew 3.7 percent last year, but the expansion picked up to 6.4 percent in the three months to March.

Last week the World Bank raised its 2012 growth forecast for the Philippines to 4.6 percent from 4.2 percent, following the stronger-than-expected start to the year.

However it warned the crisis in Europe and a Chinese slowdown could affect key export markets and cause job losses in electronics and other manufacturing industries.

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