Inflation may hit 5 percent next quarter; rate hike possible

Inflation could hit 5 percent by the third quarter, which could prompt the Bangko Sentral ng Pilipinas (BSP) to finally raise benchmark interest rates. The projection was given in separate research notes dated April 6 issued by Citigroup Global Markets and ING Bank. "Prevailing cost-push and demand conditions suggest a slower pace of rate adjustment likely to begin after the May elections. [The] CPI (consumer price index) is likely to probe the range of 5 percent [sic] either in June or July, which may finally compel policymakers to kick-start [a] policy rate adjustment," Citibank said. In its note, ING said "We forecast headline inflation accelerating to 5 percent in the third quarter of 2010 from the commodity price bounce of 2009, then receding toward 4 percent by year-end." But it clarified that faster inflation would unlikely be a factor for increases in the rates of the BSP or of fixed rate Treasury notes. ING analysts were not immediately available yesterday to expound on the outlook. Last Tuesday, the government reported that inflation picked up to 4.4 percent in March, the highest so far this year. Citibank said inflation in the first quarter stood at 4.3 percent, against the 3.3 percent recorded in the same period last year. This, the bank said, showed that the rise in consumer prices was on an uptrend, consistent with the picture of a recovering economy. In an interview in Vietnam, where he is attending a meeting of finance ministers and central bank governors of the Association of Southeast Asian Nations, BSP Deputy Governor Diwa C. Guinigundo said the central bank was keeping its options open on any interest rate rise since it was difficult to predict market conditions in one or two months. "There are some people who believe that we will not do it until the second half of 2010, but we don’t want to paint ourselves into a corner because our decision, aside from being driven by the inflation outlook and the strength of economic recovery, is also very much data-dependent," he said. — Don Gil K Carreon, BusinessWorld with Reuters