Barclays Capital says Bangko Sentral to cut policy rates by 25 bps in Q2

Investment bank Barclays Capital Ltd. said in a research note that the Bangko Sentral ng Pilipinas will likely pare 25 basis points (bps) off its policy rates in the second quarter.   "We continue to expect another 25 basis point cut from the central bank in the second quarter," said Barclays economist Prakriti Sofat.   She noted that BSP Gov. Amando Tetangco Jr. already announced that the Philippines would likely face external headwinds this year.   The Philippine economy grew at a slower-than-expected 3.7 percent last year, from 7.6 percent in 2010, the National statistical Coordination Board or NSCB reported Monday, citing storms in the second half, underspending and weak global trade as primary reasons.   The central bank lowered interest rates by 25 basis points last Jan. 19, bringing the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.   The Bangko Sentral Monetary Board has two policy-setting meetings in the second quarter — April 19 and June 14.   "We turned increasingly cautious on 2012 GDP in early December, cutting our growth forecast 60 basis points, to 4.2 percent, given the larger drag from net exports and softer private investment," Sofat noted.   Spending by the Aquino government will likely pick up this year, according to the London-based investment bank.   "However, we believe government capex disbursals will accelerate this year given the systems put in place," said Sofat.   Inflation this year will average 3.5 percent, from 4.4 percent in 2011, largely driven by expectations of world crude oil prices at $115 per barrel. "Inflation expectations are also broadly anchored throughout the economy," said Sofat.   The Bangko Sentral inflation target is between 3 percent and 5 percent between 2011 and 2013, and likely to average 3.1 percent this year and 3.4 percent next year.   For the peso-dollar exchange rate, Barclays Capital said it will likely favor the Philippine currency at P42:$1 over the next 12 months.   "In the near term, we believe the Philippine peso will largely be driven by global risk sentiment, with BSP likely willing to accept movements broadly in line with the region to support exports and the purchasing power of remittances," Sofat noted. — VS, GMA News