Despite the latest data, analysts expect Bangko Sentral ng Pilipinas to keep rates unchanged this year because of uncertainties in the global market and the likelihood of further increases in the price of oil.
The headline inflation rate in March was at 2.6%, down from 2.7% in February, the National Statistics Office reported Wednesday. Slower price increases for alcoholic beverages and tobacco as well as clothing and footwear were the main factors, the data showed; rises in housing and utility costs also eased.
The March reading, the lowest since the 2.2% of September 2009, indicates that inflation in the country will be manageable during the current policy horizon, central bank Gov. Amando Tetangco said.
economic problem in the philippines 2012
Still, old problems remain. In early March, Aquino said he had ordered an inquiry into reports of an alleged plot to overthrow him, and he is wresting with violent Maoist and Muslim rebels and a worsening security situation.
Corruption and creaking infrastructure are also difficulties for Aquino, as Manila tries to press its claims in the contested South China Sea, and manage its changing relationships with China and the United States.
Ratings: Unchanged since March
S&P: BB
MOODY'S: Ba2
FITCH: BB+
The cost of insuring against default on 5-year sovereign debt was around 140 basis points at the start of April 2012. It has traded choppily after rising to its highest in nearly 2-1/2 years last September.
Following is a summary of political risks to watch:
Internal security
Internal security remains a weak spot, persistently highlighted by foreign embassies in travel advisories, with law enforcement hobbled by corruption, lack of police resources, and easy availability of guns on the street.
In late November, a crude bomb exploded near a memorial for 58 victims of the Philippines' worst election-related violence hours before the start of a rally to commemorate the attack two years ago. That followed deadly fighting in October between Philippine soldiers and a group of Muslim separatists on a southern island forced thousands of people to flee their homes and created a new problem for stalled peace talks to end the long-running insurgency.
Aquino held talks with the Moro Islamic Liberation Front's (MILF) leader in Tokyo last year to accelerate the peace process, but momentum appeared to have stalled after the separatists rejected Manila's proposal to end the conflict.
MILF is not the only active rebel group. In October, around 200 Maoist guerrillas attacked three private mining projects on southern island Mindanao, destroying around $70 million worth of equipment, and threatening more attacks. In late March, communist rebels from the New People's Army (NPA) threatened to attack power companies in the south.
Also in the south, three people were killed in a bomb attack in Zamboanga city in November, the third hostel bombing in the south since September. The attacks were blamed on an Islamist militant group. In January, Aquino warned against a possible Islamist militant attack in the capital on the eve of a religious procession.
What to watch:
The army's patience with the peace process, and with Aquino. Coup attempts are not unknown in the Philippines, and some within the army are angry with Aquino for not taking a tougher line with MILF.
Any more attacks on mines or other businesses, and how investors respond. The Philippine army has said it lacks the resources, so has asked firms to hire private militias to guard their businesses.
The Maoists are refusing to return to talks until some prisoners are released, and they continue to attack government forces.
South China Sea
The Philippines is offering the United States greater access to its airfields and may open new areas for soldiers to use, as the Pacific country seeks stronger military ties with its closest ally, its foreign minister said in March, moves likely to further raise tensions with China.
Manila will not surrender claims to its exclusive economic zone, as defined by the United Nations, but it cannot hope to confront China militarily, and is wary of spoiling relations with the region's superpower.
Beijing wants one-one-negotiations, but Manila and other claimants prefer a multilateral approach, which opens the way for an indirect role for the United States. China wants the United States to stay out of the dispute.
Manila has accused China of intruding into its "maritime jurisdiction" after three Chinese ships were spotted in December in disputed areas in the South China Sea.
What to watch:
The possibility of the U.S. deploying spy planes in the Philippines, a proposal made last year.
New security arrangements between Washington and Manila to increase US military footprint in the Philippines, and the US fighter jets and warships the Philippines is able to buy.
Fresh approaches by Manila to pursue its claims on the disputed Spratly Islands. Aquino told Reuters in September that Manila was looking into at least five other options to pursue its claims after China rejected arbitration.
Commercial activity in the South China Sea. Manila has awarded two oil and gas contracts there, and an Anglo-Filipino company may start drilling oil wells later this year in the Reed Bank, another area claimed by China.
Spending on upgrades of air and naval equipment, including radar stations. The Philippines says it needs to build a basic defense capability, and its actions are in no way aggressive.
Political and economic challenges
The cities of Cagayan de Oro and Iligan will require large-scale rebuilding after the December storms.
In late December, Aquino declared a state of national calamity and ordered an investigation into the disaster. He said Manila would use more than 1 billion pesos ($22.79 million) in calamity funds and soft loans from multilateral lending agencies such as the World Bank for reconstruction.
More than $20 million of foreign aid has been donated to the 300,000 people left homeless by the floods.
Aquino remains immensely popular with voters, and his administration seems to have regained momentum after a lull in the first half of 2011 when he was criticized for a lack of drive.
The arrest in November of former Philippine leader Gloria Macapagal-Arroyo for vote rigging has put Aquino's anti-graft stance firmly back in the public eye, but there is also a risk that the Arroyo case could create uncertainty for investors if it becomes a protracted political and legal battle, and prove a distraction from the work of economic reform.
The government's strength has been economic management, including reducing the budget deficit by improving revenue collection and controlling spending, but the worsening outlook for the global economy is hitting the Philippines.
In January, the central bank cut its key policy rate by 25 basis points to 4.25 percent, as widely expected, while February inflation eased to its lowest in more than two years Source newsinfo.inquirer.net
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