Analysts see PHL inflation flat at 3.4% in March, BSP to keep policy rates on hold

Consumer prices likely stayed flat in March as the effects of higher costs of food, electricity and so-called “sin” products were offset by lower pump prices of gasoline, analysts polled by GMA News Online said. Benign inflation would prompt monetary authorities to keep policy unchanged, but tweaks are inevitable in the medium-term as inflationary pressures mount. A poll of seven analysts and economists yielded a median inflation forecast of 3.4 percent for March, unchanged from the actual rise in consumer prices a month earlier and within the Bangko Sentral ng Pilipinas's 2.8 to 3.7 percent projection in March. Official inflation figures are slated for release on Friday, April 5. Inflation quickened to a five-month high of 3.4 percent in February from 3 percent in January, with the year-to-date inflation settling at 3.2 percent—at the lower end of the Bangko Sentral's 3 to 5 percent target for 2013. March inflation was fueled by “higher fish and meat prices, plus the continuing effects of sin taxes on alcoholic beverage and tobacco,” said Ildemarc Bautista, research head at Metropolitan Bank & Trust Co. Singapore-based economist with Standard Chartered Jeff Ng sees a year-on-year rise of 3.3 percent. "We see support from food (as 2012 prices peaked in September) and housing inflation due to increases in housing prices," he said. University of Asia and the Pacific senior economist Victor Abola, who gave the lowest full-year forecast of 2.8 percent, said “pump prices, which were down significantly, since late February would offset rise on other consumer goods.”   Oil firms have slashed pump prices twice last month on cheaper costs of crude in the global market. The last rollback—on March 24—was the fifth time petroleum companies lowered retail prices since the year started. “The strength of the peso has also reduced imported inflation,” noted Singapore-based economist at DBS Bank Ltd. Eugene Leow, referring to the foreign exchange rate staying mostly within the P40 to-a-dollar level in March. For the full-year inflation, the GMA News Online poll yielded a median forecast of 3.5 percent, above the central bank's revised 2013 forecast of 3.3 percent. In its latest policy meeting last March, the Monetary Board hiked its 2013 inflation projection from an earlier 3.0 percent on account of the rise in consumer prices at the start of the year. Maria Theresa Marcial-Javier, Bank of the Philippine Islands senior vice president and head of the Asset Management and Trust Group, said inflation could gain ground on “pending utility price hikes and the strong inflow of capital” which floods the financial system with cash. But stable costs of food due to the upcoming harvest season could pare gains in utility prices, said Security Bank Corp. economist Patrick Ella. No policy change Analysts differ on the Monetary Board's next move, the majority of whom projected the central bank keep from further tweaking rates when it meets on April 25 to discuss policy. “No change in the next policy meeting,” Luz Lorenzo, chief economist of Maybank ATR Kim Eng, said. While Security Bank's Ella sees no change in the rates on central bank's Special Deposit Accounts (SDA)—a tool for mopping up excess liquidity—as well as overnight lending and borrowing in the next policy meeting, the economist noted an SDA rate of 2 percent is “likely by year-end.” DBS's Leow also sees the central bank keeping policy rates unchanged, but noted mounting inflationary pressures “would necessitate some monetary tightening by the central bank.” For his part, UA&P's Abola said the central bank may cut SDA rates by as much as 50 basis points to 2 percent to stem inflationary pressures from portfolio investments. The central bank has kept policy rates on hold but cut the SDA rates to 2.5 percent. Last January, the Monetary Board rationalized the rates of its SDA facility to 3 percent. Since October last year, policy rates remained untouched at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending. — BM/VS, GMA News