MANILA, Philippines - The Philippines’ annual inflation rate slid faster than expected in November, boosting the chances of a possible reduction in interest rates by the Bangko Sentral ng Pilipinas (BSP) early next year.
Some analysts are betting on cuts of as much as 50 basis points in interest rates in the first half of 2012 as moderating inflation pressures give authorities the leeway to focus on boosting growth, which has lost significant momentum this year.
“As the favorable inflation outlook provides us flexibility, we are open to possible easing early next year, especially if our own growth prospects continue to be subdued,”BSP Governor Amando M. Tetangco Jr. said in a text message to reporters.
Annual headline inflation in November was 4.8 percent, lower than October’s rate of 5.2 percent and market forecasts of five percent, based on a new series using 2006 prices.
The old series based on 2000 prices showed annual inflation at 4.7 percent, slowing from October’s 5.3 percent. The central bank is using this series to measure its 2011 target of keeping inflation between 3 and 5 percent -- which will be met as the 11-month average is 4.5 percent.
While risks to inflation were tilted to the downside, Tetangco said the central bank was watching geo-political developments and their impact on commodity prices, capital flows and inflation.
Tetangco earlier said that this year and next year’s growth forecasts would be a challenge, and there was scope for monetary and fiscal policy to support the economy, with inflation expected to moderate.
Tetangco said monetary easing could be an interest rate cut, a reduction in the reserve requirement ratio, or both.
Annual gross domestic product (GDP) growth unexpectedly slowed in the September quarter on weak exports and state spending, raising doubts the 2011 growth target of 4.5 to 5.5 percent would be achieved.
At a Dec. 1 policy review, the central bank held interest rates at 4.5 percent, saying it needed to see a continuous moderation in inflation before it considered reducing rates.
“Inflation would continue to just slow in the coming months providing policy flexibility to the central bank, and given the external headwinds we are looking for the central bank cut interest rates by 25 basis points in the first quarter and another one in the second quarter,” said Prakriti Sofat, economist at Barclays Capital said.
The next policy meeting is on January 19.
The central bank raised interest rates in March and May, and then raised bank reserve requirements in June and July, bringing banks’ reserve requirement ratio back to the pre-global financial crisis level of 21 percent.
The last time it cut interest rates was in July 2009.
Based on 2006 prices, the average inflation for the first 11 months of the year stood at 4.8 percent, higher than the year ago level of 3.7 percent.
“This was effected by the slower annual increases in food and non-alcoholic beverages; housing, water, electricity, gas and other fuels; furnishing, household equipment and routine maintenance of the house; health; transport; and education indexes and the decrease in the annual rate posted in communication index,” the National Statistics Office (NSO) said.
The NSO said annual inflation in the National Capital Region (NCR) slowed down to 3.5 percent in November from 4.9 percent in October. On the other hand, inflation in areas outside NCR likewise eased to 5.1 percent from 5.3 percent due to slowdowns in the annual upticks in food and non-alcoholic beverages; housing, water, electricity, gas and other fuels; health; transport; and education indexes and negative annual adjustment in communication index were observed during the month. -
