Economic Highlights (Philippines) – 07/04/2014

Inflation Inched Lower In March, But Risk To Price Pressures Remains On The Upside

u  The headline inflation rate inched lower to 3.9% y-o-y in March, from +4.1% in February and compared with +4.2% in January. This marked the slowest pace in four months and the second successive month of moderation. At the same time, March’s inflation figure came in below consensus and our expectations of 4.1%, a suggestion that the supply-side pressures from disruptions caused by the Typhoon Yolanda in late 2013 are easing.

u  Going forward, upside prices pressures may result from additional petitions for adjustments in electricity rates and from the impact of sustained growth in liquidity. At the same time, the significant weakening of the peso may also fuel imported inflation. Food prices are also expected to trek higher due to expectations of a low harvest, leading to tightness in supply. As a result, we expect inflation to accelerate to 4.2% in 2014, from +2.9% in 2013, before picking up to 4.5% in 2015.

u  The Bangko Sentral ng Pilipinas raised the reserve requirement by 100 basis points to 19% for universal and commercial banks effective 4 April to guard against potential risks to financial stability that could arise from continued strong liquidity growth and rapid credit expansion. Nevertheless, the balance of risks to the inflation outlook remains slightly weighted toward the upside. As a whole, we expect a 25-50 basis points hike in the benchmark overnight borrowing rate to 4.00% in 2H 2014.

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.