(Adds detail, background, comments)
* C.bank keeps policy rate at 4%, as widely expected
* C.bank keeps 2019-2021 inflation projections
* Says prospects for growth remain solid
By Karen Lema and Neil Jerome Morales
MANILA, Dec 12 (Reuters) - The Philippines kept its key
policy rate steady for a second straight meeting on Thursday,
giving earlier rate cuts time to take effect as the economy is
buffeted by the Sino-U.S. trade war and slower global demand.
The Southeast Asian country is one of the fastest growing in
Asia, but rising uncertainties, including a slowdown in global
tech demand, are risks to the country's growth outlook.
The central bank left the rate on its overnight reverse
repurchase facility PHCBIR=ECI at 4.0%, hours after the U.S.
Federal Reserve kept rates unchanged and as predicted by all 10
economists in a Reuters poll. It has cut the rate three times since May, reversing some of
last year's policy tightening, to support slowing economic
growth.
But since the outlook has improved on the back of higher
government spending and strong domestic demand, Bangko Sentral
ng Pilipinas (BSP) Governor Benjamin Diokno said the central
bank could afford to leave the policy rate unchanged at 4.0%.
"Sustained policy support from increased fiscal spending, as
well as improved domestic liquidity conditions owing to recent
monetary adjustments, is also expected to support growth in the
coming months," Diokno told a news conference.
Some economists expect the central bank to resume easing
next year via policy rate cuts or a reduction in the amount of
cash banks must hold as reserves.
The central bank will also monitor price trends, after
inflation quickened for the first time in six months in November
to 1.3%, bringing the average year-to-date rate to 2.5%, well
inside the central bank's 2%-4% target range.
This year's inflation estimate of 2.4% and the 2.9% price
projections for 2020 and 2021 were kept to reflect upside and
downside risks from volatility in global oil prices, African
Swine fever outbreak and uncertainty over trade policies.
Analysts expect 2020 inflation will be higher than this year
but to remain within the central bank's comfort range, affording
the BSP room to loosen policy further if needed.
Iluminada Sicat, head of the central bank's monetary and
economic sector, said the Fed's decision is "good news" for the
policymakers as it gives them "greater flexibility" in setting
the direction of policy.
She, however, said the central bank's future policy
decisions will remain data-dependent.
On Wednesday, the government lowered its medium-term growth
targets, citing the ongoing trade war as among risks to the
economic outlook, but the projected pace was enough to keep the
Philippines among the fastest-growing economies in Asia.
It trimmed this year's growth target to 6.0%-6.5% from
6.0%-7.0%. It also lowered its growth goals for 2021 and 2022 to
6.5%-7.5% from 7.0%-8.0%, but kept the 2020 target at 6.5%-7.5%.
Some economists have pencilled in at least one rate cut next
year, after a total of 75 bps of rate cuts this year.
The central bank reduced the reserve requirement ratio by
400 bps to 14% this year, consistent with its medium-term plan
to bring it to single-digit levels, and more could be expected
according to a note from Nomura.
A rebound in Philippine economic growth was also expected to
be sustained on higher government spending with fourth quarter
GDP likely to be between 6.4%-6.5%, Diokno has said, faster than
the previous quarter's 6.2%.
(Editing by Jacqueline Wong)