The Philippine central bank cut its main policy rate on Thursday by 0.25 percentage point to 3.75% on Thursday. That followed a rate cut by the Bank of Thailand a day earlier, to a new low of 1% from 1.25%.
“The board noted the spread of the 2019 novel coronavirus could have an adverse impact on economic activity and market sentiment in coming months," Benjamin Diokno, governor of the Philippine central bank, said in remarks livestreamed on Facebook.
Thailand's Board of Investment also announced fresh measures to boost the economy, including increased corporate tax exemptions for both small businesses and large-scale projects. Thai authorities have taken various steps to ease conditions for businesses, including tax cuts, easing loan repayment terms and extending the deadline for filing personal income tax from March to June.
Many of China's neighbors are reeling from plunging tourist arrivals and other adverse impacts from the outbreak that has spread from the central Chinese city of Wuhan to more than 20 countries. The Bank of Thailand said the softer credit policy would help businesses and households cope as risks rise from mounting debt, severe drought and uncertainties brought on by the trade war between China and the U.S.
Analysts are predicting that the Thai central bank will cut the benchmark rate by another 0.25 percentage point, perhaps as soon as March. The Monetary Authority of Singapore said Wednesday that it had “sufficient room" to ease the exchange rate “in line with the weakening of economic conditions as a result of the outbreak."
About 10% of Thailand's economy hinges on exports to China. The share of such exports is even higher for Vietnam, Taiwan, South Korea and Malaysia. Exporters of major commodities like oil, coal and iron ore also are vulnerable to shocks from a further slowdown in China's economy.
The trend toward easing credit began last year as relations between China and the U.S. dipped to their worst in decades and is expected to continue. Analysts at Fitch Solutions Macro Research said Wednesday that they estimate regional growth could slow to 4.0% from 4.3% in 2019 if the outbreak leads to a much slower rate of growth for China. Economists already are forecasting that China's economy, the world's second largest, will expand at about a 5% pace in 2020, down from 6.1% last year.
The Fitch report reckons that China accounts for more than two-thirds of growth for developing economies in Asia and for almost 80% of travel. Further interest rate cuts are likely in store for the Philippines, said Alex Holmes of Capital Economics.
“The Philippines is likely to be more insulated from the economic fallout of the coronavirus than most other countries in the region," he said. “But the disruption to the tourism sector and industry will still add to the headwinds the economy faces from slowing consumption growth, and weak exports."
He said the Philippine economy would likely not attain the government's target growth rate of 6.5%-7.5% and might not even reach the 6.4% rate seen in the last quarter of 2019.