Slower April inflation leaves elbowroom for SDA rate cut, analysts say

Lower costs of food and oil may have eased the pace in consumer prices last month, analysts polled by GMA News online noted, saying slower inflation allows monetary authorities to further cut the yield special deposit accounts (SDA) with the central bank. A poll of eight analysts and economists shows an April median inflation forecast of 2.8 percent, well-within the Bangko Sentral ng Pilipinas' (BSP) 2.2 to 3.1 percent forecast for that month. http://www.gmanetwork.com/news/story/306010/economy/business/bangko-sentral-sees-inflation-slower-in-april Three of the analysts polled contributed their expectations of how prices moved last month and how see inflation for the whole of 2013, but without additional comments. The forecast is the slowest pace of inflation so far in the year, and compares with the same pace of 2.8 percent recorded in November and in June last year. The central bank sees full-year inflation averaging at 3.2 percent, or at the lower end of its 3 to 5 percent target. The National Statistics Office is scheduled to release the April inflation rate this week. “We expect inflation to remain contained given lower commodity prices, well-anchored inflation expectations and a favorable base,” said Prakriti Sofat, Singapore-based economist at Barclays. Security Bank economist Patrick Ella has parallel conclusions: “Largest driver [for April inflation] is food and energy prices in which we see slight declines in the former and a mild increase in the latter.” Good harvests induced a general decline in prices of food items last month, except for pork and some fruits whose prices have gone up due to higher demand, said Metropolitan Bank & Trust Co. economist Ildemarc Bautista. The food basket accounts for half of the consumer price index. Thrice last month oil firms rolled-back pump prices. Money in the central bank Noting that P1.983 trillion remain parked in central bank vaults as special deposit accounts as of end-April, Bautista said “slower inflation gives the central bank room to cut SDA rates.” The central bank has so far slashed the SDA yield to 2 percent for all maturities. “Still strong capital inflows may prompt the BSP to cut its SDA rate further by 25 bps (basis points) to 1.75 percent,” said Jeff Ng, Singapore-based economist at Standard Chartered Bank. Analysts, meanwhile, said price pressures could stoke inflation in the latter part of the year but noted that these will likely be benign inflation numbers. GMA News Online's poll shows a median forecast  of 3.3 percent for the full year. Eugene Leow, economist at DBS Bank Ltd. in Singapore said, “The low inflation environment is expected to persist in the short term... and [we] project a mild up-drift through the rest of this year.” As such, analysts were in disagreement whether there is need for the central bank to raise policy rates to cushion any upside risks to inflation. Standard Chartered's Ng sees the Bangko Sentral “to hike its key policy rate by 50 bps to 4 percent by end-2013,” while Barclay's Sofat sees “policy tightening will only materialize into 2014.” Security Bank's Ella, however, said, “While upside risks to inflation at this point is still remote, we see an initial reversal in policy rates but this will likely occur if and when inflation will trend near 4 percent.” — VS, GMA News