Manila. The Philippine central bank could deliver its third rate cut of the year next week as Governor Benjamin Diokno expects inflation to ease to a three-year low this month.

With inflation seen slowing to 1.4 per cent in September, Bangko Sentral ng Pilipinas may cut interest rates by 25 basis points at its Sept. 26 meeting, Diokno told Bloomberg Television’s Haslinda Amin. Further reductions in the proportion of funds lenders must hold in reserve could come as early as October or November, he said.

“It’s really inflation that makes a difference in our decision next week,” Diokno said, while noting the choice is up to the bank’s seven-member Monetary Board, not the governor alone. “We have more space. We want to normalise as soon as possible” from 175 basis points of rate increases last year.

Bangko Sentral must tread carefully to boost economic growth while keeping inflation in check, amid the US-China trade war and an oil-price spike from an attack on Saudi Arabian production facilities. Inflation fell below the central bank’s 2 per cent-4 per cent goal in August, but fuel costs remain a major factor that could push them higher.

The Philippine central bank was among Asia’s most aggressive in tightening monetary policy last year as oil and rice drove inflation. Policymakers have since changed course, cutting the benchmark interest rate by 50 basis points so far this year as the economy grows at its slowest pace in more than four years.

Oil-Slicked Inflation

The peso closed 0.4 per cent higher at 51.96 per dollar on Friday’s trading in Manila. The Philippine Stock Exchange Index was 0.5 per cent lower.

“If the cuts come in September that could be the end of the rate-cut cycle at least for this year, unless something significant happens” such as third-quarter economic growth falling below target, said Robert Dan Roces, an economist at Security Bank Corp. in Manila.

In a research note, HSBC Holdings Plc economist Noelan Arbis said it’s now “clear as day” the bank will cut its benchmark rate before the end of the year, predicting it would come next week. The central bank is likely to lower the policy rate yet again in the first quarter of 2020, with reductions to the reserve requirement ratio continuing beyond that, Arbis said.

The governor said on Friday that inflation should stay within the bank’s target range even if oil prices reach $90 per barrel. After last month’s rate cut, Diokno flagged at least one more 25-basis-point policy rate cut before the end of the year and a 100-basis-point reduction in the reserve requirement ratio, a step designed to boost growth by pumping more money into the economy.

The RRR was lowered in stages between May and July, part of Diokno’s aim to bring the rate to single digits by the end of his term in 2023.

“This is part of the new central bank: We want to be transparent and we want to notify the industry of what we’re doing, ahead of time,” said Diokno, who took office in March.

Growth Risks

Friday’s interview came a day after Diokno, at a panel discussion in Singapore, identified US President Donald Trump as the biggest risk to the world economy. He doubled down on the comment Friday, saying it’s the general consensus among central bankers.

Diokno acknowledged the global growth outlook and US-China trade war “could get worse,” but said he’s still “optimistic” the Philippine economy can grow at least 6 per cent this year and 6.5 per cent-7.5 per cent next.

The economy may grow 6 per cent-7 per cent this quarter on redoubled government spending, Economic Planning Secretary Ernesto Pernia said in a text message Friday.

Diokno expressed confidence in the country’s foreign-exchange reserves, enough to cover more than seven months of imports. He also said the central bank’s comfort with the peso exchange rate had allowed it to avoid intervening in the foreign-exchange market for “a long, long time.”