BSP hints of further tightening
June 8, 2011
BY LAILANY P. GOMEZ REPORTER
THE Bangko Sentral ng Pilipinas (BSP) hinted that its monetary tightening bias remains after inflation in May came in higher than the previous month.
In a report, the National Statistics Office (NSO) said the average increase in prices rose to 4.5 percent last month from a revised 4.3 percent in April. This was at the low-end of the BSP’s 4.5 percent to 5.5 percent forecast range for May, but the five-month average of 4.2 percent inched closer to the high-end of the central bank’s full-year target range of 3 percent to 5 percent.
Driving the May increase in prices was fuel, light and water, even as food items, which comprised the bulk of the Philippine inflation basket, contributed less to the upward pressure amid the recovery in the agriculture sector.
Excluding the impact of volatile food and energy items, core inflation still crept up to 3.7 percent in May from 3.3 percent the month before.
“This calls for continued close monitoring of possible sources of inflationary impulses and their likely impact on inflation and inflation expectations to ensure that the monetary policy stance is consistent with the price object,” BSP Governor Amando Tetangco Jr. said in a text message to reporters.
The policy-making Monetary Board will meet on June 16 for its regular rate-setting.
It raised interest rates last month for a second time this year to prevent second-round effects from driving up overall prices and anchor inflationary expectations.
The BSP’s overnight borrowing or reverse repurchase (RRP) rate stands at 4.5 percent, while its overnight lending or repurchase (RP) rate at 6.5 percent.
In a commentary, Barclays Capital said the BSP will likely keep rates unchanged at 4.5 percent in next week’s meeting “so as to gauge the impact of its previous tightening on inflation expectations against a backdrop of increased global growth uncertainties.”
“However, the upward drift in core inflation, together with the likelihood that the headline rate will breach 5 percent in the coming months, suggests that the trend in rates remains upwards for now,” said Prakriti Sofat, Barclays economist, adding that they expect the BSP to hike the policy rate by 25 basis points to 4.75 percent in July.
He said the central bank will also allow some currency appreciation to lean into imported price pressures and continue to expect dollar-peso exchange rate to drift to 42.30 in three months and to 41.50 in 12 months.
In a separate research note, Metropolitan Bank and Trust Co. said the May and revised April inflation figures indicate a moderation of price levels, thus meriting a reduction in its full-year forecast to five percent from the earlier estimate of 5.3 percent.
Having said the above, “we still foresee inflation on an upward trend for the rest of the year, with a downward movement by around 3rd quarter. After all, even if commodity prices have been on a downward trend, they are still currently at elevated levels,” Pauline Revillas, Metrobank research analyst said.
“It appears that the monetary tightening in China and the emerging economies appear to be working already, plus the speculative activities of funds have been already subdued with the reported exit of major hedge fund players from their profitable commodities trading. This eases up the inflation pressures on the Philippines quite a bit, although, again, it would take some time before we see downward movements,” she said.
Barring any change in the trend, Metrobank expects the BSP to hike its RRP rate to 4.75 percent.
Source: http://www.manilatimes.net/business/bsp-hints-of-further-tightening/
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Mimosa Drive past Holiday Inn, Mimosa Leisure Estate,
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