JP Morgan sees BSP slashing rates by 25 bps

MANILA, Philippines - JP Morgan Chase & Co. said it expects the Bangko Sentral ng Pilipinas (BSP) to slash interest rates by another 25 basis points next month on the back of stable inflation and slower-than-expected economic growth.

Gilbert Lopez, head of research at JP Morgan, told reporters that the BSP’s Monetary Board has enough flexibility to cut key policy rates by another 25 bps in March.

“We believe the BSP will cut rates by another 25 basis points in March,” Lopez stressed.

The second policy rate setting meeting of the Monetary Board this year is scheduled on March 1.

The BSP slashed interest rates by 25 bps last Jan. 19 due to benign inflation outlook and at the same time to boost the country’s slackening domestic output. This brought the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.

Last year, monetary authorities raised interest rates by 50 bps in the first half of the year to keep inflation expectations well anchored amid rising oil and commodity prices. This brought the overnight borrowing rate to 4.50 percent and the overnight lending rate 6.50 percent.

Lopez said monetary authorities have enough elbow room to keep an accommodative policy stance as inflation is expected to ease to around four percent by the end of 2012 from an average of 4.4 percent last year.

The BSP has set an inflation target of three to five percent between 2011 and 2013. Its latest inflation forecast is at 3.1 percent this year and 3.4 percent next year.

He added that JP Morgan sees the country’s GDP expanding four percent this year after slackening to 3.7 percent last year from 7.6 percent in 2010 due to weak global economy and government underspending.

 The Cabinet-level Development Budget Coordination Committee (DBCC) lowered the GDP growth forecast to a range of five to six percent this year instead of the original target of seven to eight percent.