The Philippine central bank reduced its key interest rate as expected to a 17-year low on Thursday.

The Monetary Board of the Bangko Sentral ng Pilipinas lowered the interest rate on the overnight borrowing or reverse repurchase facility by a quarter basis points to 4.5% with immediate effect. The interest rate matched economists' expectations and now stands at the lowest level since May 1992.

The central bank also reduced the interest rate on overnight lending or repurchase facility to 6.5% from 6.75%.

Since December 2008, the central bank has made a cumulative reduction of 150 basis points in the key policy rates.

In March, consumer price annual inflation slowed to 6.4% from 7.3% recorded in February. It thus matched the level last seen in the same month of the previous year.

Average inflation is expected to settle within the target ranges in 2009 and 2010. According to the central bank, the risks to inflation are skewed to the downside given expectations of weaker global and domestic demand conditions and a low probability of a significant near-term recovery in commodity prices. At the same time, upside risks are linked to the exchange rate fluctuations and prices of oil and food products.

Earlier in the day, the government lowered its economic growth estimate for 2009 to 3.1%-4.1% from an earlier forecast of 3.7%-4.4%. The government also revised its budget deficit estimate for this year. The budget deficit is expected to widen to PHP 199.2 billion or 2.5% of GDP. This is larger than the previous ceiling of PHP 177.2 billion.

The central bank is of the view that the restoration of the global financial system to normalcy may take some time. The central bank would carefully observe global and domestic developments in order to ensure that the monetary policy stance remains appropriate.

Elsewhere, the National Statistics Office's report showed a 39.1% annual decrease in exports in February following a 40.6% fall in January. Compared to January, exports were down 0.3% to US$2.5 billion.

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