Philippines' central bank opts for preemptive rate cut

BSP is taking full advantage to cut rates and insure the economy against a further slowdown on the external front, says DBS.

DBS Group Research noted:

The central bank (BSP) opted to cut the overnight borrowing rate (OBR) by 25bps to 3.75%. We noted that BSP had been more dovish in recent weeks and that the risks of a rate cut are mounting, but did not expect monetary easing to come so soon.

With benign inflation over the first half of the year, BSP is taking full advantage to cut rates and insure the economy against a further slowdown on the external front.

Notably, BSP also revised its inflation projection for 2013 down from 3.4% to 3.2%. Lower interest rates should render local assets less attractive to foreign investors. This is in line with BSP’s strategy to reduce speculative inflows and limit peso strength.

Over the past two weeks, BSP has also taken steps to restrict foreign funds from tapping on its special deposit account (SDA) and also lowered the interest rates on the SDAs.

BSP meets for three more times this year (13 Sep, 25 Oct and 13 Dec) and further cuts in the OBR are certainly possible.