The Bangko Sentral ng Pilipinas, which favors an accommodative monetary policy to stimulate economic growth, raised rates by a quarter of a point on April 7 — its first rate change in nearly two years — in response to rising inflationary pressure.
Its overnight borrowing rate is now seven percent and its lending rate 9.25 percent.
Jose Mario Cuyegkeng, an economist at ING Bank in Manila, said slower economic growth meant there would be no increase in rates this time.
The economy grew 4.6 percent in the year through the first quarter, slowing from 5.4 percent in the last quarter of 2004.
It grew a seasonally adjusted 1.1 percent from the final three months of 2004 after a revised 0.8 percent expansion in the October-to-December quarter, as the farm sector struggled to recover from typhoons at the end of last year.
But Jonathan Ravelas, chief market strategist at Banco de Oro Universal Bank in Manila, said: "Inflationary pressures are still present."
A drop in crude oil prices from record highs was only temporary, he said.
The central bank has said it expects annual inflation in May to come in at 8.1 to 8.6 percent. The National Economic Development Authority’s estimate is around 8.5 percent — the same as the previous three months.
The BSP has forecast inflation in 2005 would average 7.0 to 7.3 percent, higher than its previous estimates and the government’s target of five to six percent.
The inflation rate in 2004 was six percent.
Analysts said spending related to the start of the school year this month, as well as recent rises in power rates and wages in some parts of the country, may push up consumer prices in June and July.
"Moving forward, I still see another rate hike each quarter for the Monetary Board, just to reflect the rise in inflation," Ravelas said. "The bias of the central bank would be to tighten, but at this point in time it would be gradual."
The rate on the benchmark 91-day Treasury bill, used by commercial banks to price loans, fell to 5.767 percent on Monday — the lowest mark in one and a half years — due mainly to excess liquidity in the market, but dealers doubt it will go much lower.
"If it falls further, 5.5 percent may be the lowest level for the year," Ravelas said.