Interest Rate Cut Expected


The Bangko Sentral ng Pilipinas (BSP) reinforced investor expectations of another interest rate cut next week after Governor Amando Tetangco said the there was room for lower rates given subdued inflation risks.

“In the Philippines, as in most jurisdictions, inflation risks are subdued and inflation expectations are well-anchored. These give the BSP flexibility at this time to consider further easing of monetary policy,” Tetangco said in a mobile phone text message on Thursday.

Many analysts expect the bank to cut its policy rate by a quarter of a percentage point to a record low of 4.0 percent at its meeting on July 9 before pausing rate cuts.

The central bank has cut interest rates by a total of 1.75 percentage points since it began its easing cycle in December, to help lift economic growth, which is expected to slow to 0.8-1.8 percent this year after a 3.8 percent expansion in 2008.

Tetangco has repeatedly said since the rate cut at its last meeting in May that the monetary authority has further scope to trim because of the favorable inflation outlook and well-anchored inflation expectations.

The monetary authority, which is targeting inflation of 2.5-4.5 percent in 2009, said inflation probably slowed to 1.2-2.1 percent in June, its lowest in more than two decades.

June inflation data will be released on July 7

This is a by product of slower growth in the Philippines. It may indicate that the recession has deepened in the Philippines.  Central banks will generally lower interest rates during such a period to stimulate lending.  Increased lending will apply downward pressure on the value of a currency. However, if that lending does not take place, the value of the currency will instead have an upward pressure.

As always, one should consider all the varibble that affect the value of currency, inflation and growth is only one factor.  Also, performance in both countries must be considered.

Some of the information above was taking from the Philippine Information Agency.

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Filed under: Living In The Philippines

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