Philippines further slashes policy rate by 25bps

The historical-low cut is the country's third this year but inflation is still foreseen to stand pat at 3%.

According to Maybank Kim Eng, the central bank lowered the policy rate 25bps to 3.75%, the third rate cut this year and a historical low. This is still higher than inflation, which averaged 3% in 1H12 and which probably will stay in that level in the months to come.

Here's more from Maybank Kim Eng:

The central bank likely acted pre-emptively in case the US Federal Reserve launches a QE3 initiative, which could cause peso appreciation to accelerate. Sharp peso appreciation has been an issue because of its impact on exports and remittances from overseas workers.

the national government grew expenditures in June by 17.8% YoY, to PHP127b, slightly faster than 16.7% growth in May. This brought 2Q12 government spending 14.1% higher, almost the same as 14.6% growth in 1Q12. In 1Q12, government spending contributed to better-than-expected 6.4% GDP growth. Given robust 2Q12 growth in government spending, we expect the same strong contribution to GDP. That is the reason for upgrading our 2012 GDP forecast to 5.4% from 5% previously.