BSP seen to cut policy rates in 2nd quarter

The Bangko Sentral ng Pilipinas will likely slash its key interest rates by another 25 basis points to 4 percent as early as next month given the benign inflation environment and weak economic growth last year, according to a joint research by First Metro Investment Corp. and the University of Asia and the Pacific.

In their joint publication “The Market Call,” FMIC-UA&P said: “There is even the possibility of a final 25-basis point rate cut in the second quarter should inflation numbers turn out much better than expected.”

But despite the weak growth of 3.7 percent for the fourth quarter and for the full year of 2011—which were below expectations—the research said the Philippine economy had “turned the corner.”

It said the leading economic indicator (LEI) of the National Statistical Coordination Board (NSCB) has shown a continuing rise for the first quarter of 2012 while growth in electricity sales of Manila Electric Co., especially to the industrial sector, has been accelerating in the fourth quarter, reaching its fastest growth last year in the month of December.

“Most analysts have already discounted the mediocre performance of 2011 and are looking at 2012 with greater optimism despite the continuing concerns over the unresolved Eurozone debt crisis,” the research said.

The more upbeat outlook for this year, the research said, was supported by expectations of greater fiscal spending by the government as well as a downtrend in inflation.

The research said the national government should be able to spend at least 20 percent higher in the first quarter given the improvement in the expenditure review and disbursement process as well as some P140 billion in funds already readied for infrastructure spending.

“Supportive of higher growth expectations also is the inflation outlook. We see the downward trend continuing through most of the year,” the research said.

The research said it expected headline inflation rate in the Philippines to average below 4 percent in the first quarter from 4.6 percent in the previous quarter as crude oil prices were stabilizing, albeit at high levels.

“It is also likely to average slightly below 3 percent by second quarter as weakness in the Euro zone puts less pressure on commodity prices,” it added.