Slower rise of March consumer prices to keep policy rates unchanged

More stable food prices this March dampened the overall rise in consumer prices, potentially staying further tweaks to the country's monetary policy.

 

The National Statistics Office (NSO) on Friday said that headline inflation decelerated to 3.2 percent in March from 3.4 percent in February. 

 

The March figure is within the Bangko Sentral ng Pilipinas' 2.8 to 3.7 percent projection, but came in lower than analysts' expectations of 3.4 percent.

 

According to the NSO, the costs of food and non-alcoholic beverages; utilities; transport and communication; and household equipment and routine house maintenance were slower in March. 

 

The uptick in consumer prices, meanwhile, was fueled by higher costs of tobacco and alcohol products. 

 

The slower-than-expected inflation could result in monetary authorities keeping policy rates —which is the benchmark for most consumer loans— unchanged.

 

Central bank governor Amando Tetangco, Jr. said in a text message to reporters that the slower inflation “affirm our view that inflation is manageable.”

 

British banking giant Barclays said benign inflation figures could prompt the Monetary Board to keep policy rates unchanged for the rest of the year, but further cuts in rates of the central bank's Special Deposit Accounts (SDA) – a tool used to mop-up excess liquidity which stokes inflation –  is likely. 

 

“Given the combination of a benign inflation outlook and BSP (Bangko Sentral)’s concerns on capital inflows, we no longer expect a rate hike in Q4 13 (fourth quarter or 2013),” Barclays said in an email. 

 

Earlier, the British financial institution projected that the central bank will keep policy rates unchanged in the near-term before a 50 basis-point hike in March. 

 

In the email, Barcalys said, “We believe further cuts of 50-100 basis points to the SDA rate are likely in the coming six months.”

 

“Lowering the rate on SDAs reduces BSP’s sterilization costs and helps its balance sheet, which has come under pressure,” it added. 

 

The central bank has kept policy rates on hold as it cut rates for the SDAs to 2.5 percent. Last January, the Monetary Board rationalized rates of its SDA facility to 3 percent.

 

Policy rates remained untouched at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October last year. 

 

Tetangtco said they “will remain watchful of global developments, including those in Europe, changes in the monetary policy stance in the advanced economies  including Japan, and how these impact on our own growth and inflation dynamics.” 

 

On Thursday, the Bank of Japan pledged to double its government bond holdings in two years as it seeks to end nearly two decades of deflation. This could result in foreign exchange volatility and could flood the financial system with cash. 

 

Analysts have been wary of financial contagion in Europe following the bail-out deal saving Cyprus's financial system from collapse. — TJD, GMA News