Jul. 9--Monetary authorities have signaled another rate cut of at least 25 basis points when they meet today, thus bringing the overnight borrowing and lending rates to at most 4 percent and 6 percent, respectively.

This would be their sixth reduction since December last year, helping prop up bank lending, which has slowed in recent months, but has kept in the double-digits despite a weak economy.

"We argue that the July 9 would likely be the last, noting that inflation should bottom out at near zero in July to August but begin to recover to around 3 percent by year-end," Philippine Equity Partners Inc. (PEPI) said.

Headline inflation decelerated to 1.5 percent last month from 3.3 percent in May due to lower food and energy prices.

"For as long as the monetary policy stance remains neutral for the balance of the year, it should favor equities," PEPI added, referring to investments in shares of local listed companies.

Separetely, ATR KimEng said inflation should decelerate further in the third quarter before accelerating in the fourth quarter.

"Given that crude oil prices and other commodities peaked in around July 2008 and headline inflation in August [was] at 12.4 percent, we are likely to see further deceleration in headline inflation in [the] coming months," ATR KimEng said.

It said most central banks tend to focus on core rather than headline inflation because the former excludes volatile food and energy prices and thus is believed to be more reflective of underlying inflationary pressures.

Core inflation in June averaged 3.9 percent year-on-year down from 4.4 percent in May and has been falling since late last year.

Compared with headline inflation, it has shallower peaks and troughs.

"We believe core inflation is close to bottoming out at its current level because we expect headline inflation to start creeping up after August," ATR KimEng said.

It said the central bank could hold the policy rate steady next time or at most there will be only one more rate cut of 25 basis points.

"Consequently, we don't think there will be a quick change in the policy rate after the easing cycle ends," it added.

Earlier, Development Bank of Singapore (DBS) said the BSP's easing today would be the last of the current cycle, adding this would mean a slightly extended rate-cut cycle relative to the rest of the region since most of Asia's central banks have already paused policy wise.

DBS said this reflects the Philippines' more vulnerable economic outlook.

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