Low inflation, interest rate cut plan seen to boost local stocks

The benchmark Philippine Stock Exchange Index (PSEi) pared losses for the week after the government released data showing that consumer prices continued to ease, boosting prospects for another interest rate cut.

After dipping as much as 2.3 percent, the PSEi closed Friday at 7,933.47, or a week-on-week loss of 0.57 percent.

Recovery accelerated after the Philippine Statistics Authority said the inflation rate last month slowed to 1.7 percent, a three-year low.

“With August inflation at 1.7 percent, this gives monetary authorities more leeway to cut its policy rate. Expect domestic interest rates to move sideways to down in the week ahead,” Jonathan Ravelas, head of strategy at BDO Unibank Inc., said in his weekly outlook report.

Volatility is expected to persist ahead of the resumption of talks to resolve a trade row between the United States and China. Another round of negotiations is expected by early October this year.

Ravelas noted that market participants were also likely to stay on the sidelines ahead of the US Federal Reserve meeting on Sept. 19 this year.

“The week’s close at 7,933.47 continues to signal the market to consolidate within the 7,700-8,000 levels in the near term,” Ravelas said.

Bangko Sentral Governor Benjamin Diokno had promised another interest rate cut before the year ends. Lower interest rates are a boost to property companies, which benefit from increased purchases as the cost of borrowed funds declines.