Philippine MArkets: 4 May 2011

04 May 2011

USD/PhP: 42.88 - 0.02 PSEi: 4298.21 - 21.16
USD/JPY: 81.02 PFINC: 964.83 + 6.02
EUR/USD: 1.4849 BDO: 57.45 + 1.35
GBP/USD: 1.6493 BPI: 58.50 - 0.10
PDSTF3M: 0.9292 MBT: 69.40 + 0.40
Prices as of 4:00pm Source: Bloomberg, Reuters



Philippines, Malaysia Will Weigh Rate Rises to Damp Prices
By Karl Lester M. Yap and Michael Munoz

May 4 (Bloomberg) -- The Philippine and Malaysian central
banks will consider raising interest rates as Asia fights
accelerating inflation stoked by surging oil and food prices.
Bangko Sentral ng Pilipinas will increase its benchmark
rate by a quarter of a percentage point to 4.5 percent tomorrow,
according to 12 of 16 economists surveyed by Bloomberg News.
Bank Negara Malaysia may end its rate-rise pause the same day
with a quarter-point advance to 3 percent, seven of 16
economists said in another Bloomberg survey, the highest number
expecting an advance since the last boost in July 2010.
India raised rates yesterday for the ninth time since mid-
March last year as economic growth in Asia fuels inflation and
forces officials to tighten monetary policy. Indonesia will
tomorrow probably report a 6.56 percent rise in first-quarter
gross domestic product from a year earlier, another Bloomberg
survey showed.
“With external food and fuel prices showing little signs
of deceleration, regional policy makers face an uphill battle in
containing inflationary expectations,” said Radhika Rao, an
economist at Forecast Pte in Singapore.
Indonesia’s central bank said April 28 it will provide
“more room” for rupiah appreciation to pare import costs. The
currency has risen about 5.1 percent this year against the
dollar, the most in Asia, according to data compiled by
Bloomberg.
Malaysia’s ringgit has jumped 2.9 percent while the
Philippine peso has risen 1.7 percent over the period. Most
Asian currencies have climbed in 2011, partly because of foreign
capital inflows seeking higher yields.

Asian Rate Increases

The Philippines would join India and Vietnam in raising
rates this month, after the South Asian nation boosted borrowing
costs by half a percentage point and the State Bank of Vietnam
lifted them for the second time in a month from May 1.
Philippine inflation held at a nine-month high of 4.3
percent in March. The central bank raised borrowing costs on
March 24 for the first time since August 2008, increasing the
overnight borrowing rate by a quarter point from 4 percent,
which was the lowest level since central bank data began in 1990.
Philippine gross domestic product expanded 7.3 percent in
2010, the biggest gain since 1976, boosted by business and
consumer spending. President Benigno Aquino is aiming for growth
of as much as 8 percent annually from 2011.

Accelerating Inflation

While the majority of economists predict Malaysia will
leave its overnight rate at 2.75 percent tomorrow, the country
that led Asia in raising borrowing costs last year will boost
the benchmark to 3.25 percent by year-end, the median estimate
in another Bloomberg survey shows.
“Most price pressures in Malaysia thus far have been cost-
push inflation, but with a tightening labour market and
increasing investment, robust private consumption will intensify
demand-pull pressure,” said Daniel Wilson, an analyst at
Australia & New Zealand Banking Group Ltd. in Singapore. “Under
these circumstances, the return to normalization will occur at a
faster pace.”
The nation’s consumer prices climbed 3 percent in March
from a year earlier, the fastest pace in 23 months, adding
pressure for tighter monetary policy.
The Malaysian central bank raised the statutory reserve
requirement ratio from April 1, and said in March that inflation
may accelerate to a range of 2.5 percent to 3.5 percent this
year from 1.7 percent in 2010. It also forecast GDP growth of as
much as 6 percent.

Indonesian Expansion

In Indonesia, Southeast Asia’s largest economy, GDP rose
more than 6.5 percent for the second straight quarter in the
three months through March, according to the median estimate in
Bloomberg’s survey of 13 economists. It climbed 6.89 percent in
the fourth quarter of 2010.
Bank Indonesia kept its benchmark rate at 6.75 percent in
April after raising it in February by a quarter point, which was
the first increase since October 2008.
“Core inflation may accelerate above 5 percent in August
and Bank Indonesia will try to curb inflation by raising the
interest rate a quarter point to 7 percent in September,” said
Juniman, an economist at PT Bank Internasional Indonesia in
Jakarta.
The annual pace of economic growth in Asian nations
including China, South Korea, Singapore, Taiwan and Vietnam
slowed in the first quarter compared with the equivalent pace in
the three months through December, while being sufficient to
propel the cost of living higher and bolster the case for
tighter monetary policy.

Growth Risk

Asia faces a “serious setback” from surging oil and food
prices that threaten to push millions into extreme poverty, the
Asian Development Bank said last week.
The region’s growth may be reduced by as much as 1.5
percentage points should the pace of gains in oil and food
prices seen so far this year persist for the rest of 2011, it
said.
Jollibee Foods Corp., the Philippines’ largest restaurant
operator, said profit growth in the first half of 2011 may slow
as raw-material prices and operating costs rise.
Crude oil prices have surged about 20 percent this year as
unrest in the Middle East and North Africa threatens supplies.
World food prices may rebound after declining in March from a
record level, the United Nations said last month.

BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001