Bangko Sentral seen cutting interest rates

Interest rates may be cut in the coming months as consumer prices continue to stabilize and amid the threat of foreign investors leaving in droves starting to ease.

Monetary-policy settings, which determine the cost and supply of money in the economy, remained “appropriate,” the central bank said on Tuesday, even as it said that officials were ready to make adjustments if needed.

This followed the release of inflation data, which showed consumer price movements slowed anew last month to match a five-year low that was hit last January.

“The Bangko Sentral ng Pilipinas (BSP) remains watchful particularly of movements in commodity prices and any shifts in market sentiment due to geopolitical developments,” BSP Governor Amando M. Tetangco Jr. said.

In March, inflation stood at a lower-than-expected 2.4 percent, matching January’s level and slowing from February’s 2.5 percent. Leading up to the data release, analysts predicted inflation likely bottomed out in January.

Cheaper fuel was the chief reason for stable consumer prices during the month, government data showed. Electricity and water rates also remained subdued, although upward adjustments are expected later this year.

The BSP’s main role is to protect consumers’ purchasing power by keeping prices stable. This is done through interest rate adjustments, as well as managing the amount of cash in peoples’ hands—with both influencing consumer demand.

JP Morgan, in a note to clients following the data release, said a cut in the BSP’s benchmark overnight borrowing rate, currently at 4 percent, was possible in the second half of 2015.

This “reflects both easing inflation and moderating risks of capital outflows as real onshore rates rise,” JP Morgan Southeast Asia economist Sin Ben Ong said. “While firmer growth could ostensibly stay their hand, the revealed reaction function of the BSP appears more driven by inflation, as was the case in 2012 and 2013.”

The BSP wants to keep inflation within the 2015 target range of 2 to 4 percent. Current government projections show inflation averaging 2.3 percent this year, much slower than 2014’s 4.1 percent.

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