Central Bank Governor Rafael Buenaventura said the latest cut brings to 4.5 percentage points the total reduction in policy rates implemented since last December.
Effective March 12, overnight borrowing rates fall to 10.5 per cent from the current 11 per cent, while overnight lending rates drop to 12.75 per cent from 13.25 per cent.
Buenaventura said the central bank's policy-making Monetary Board decided to implement the new rate cut due to a stronger peso and lower inflation in February.
Inflation in February eased to 6.7 per cent, from 6.9 per cent the previous month, due to lower food prices.
The central bank raised interest rates by 4 percentage points last November to prop up the peso, which went on a freefall amid a political crisis engulfing ousted president Joseph Estrada.
The peso has since appreciated against the U.S. dollar after Estrada was ousted in a military-backed mass uprising on January 20 and economist Gloria Macapagal Arroyo took over as president.
From an all-time low of 55.75 to the dollar, the peso is now trading within the 47.50 to 48 level.
Buenaventura earlier said the peso was projected to further appreciate to an average of 46 to the dollar this year.
(la/dpa)