Tightening signalled by BSP MONETARY POLICY TIGHTENING appears to be in the offing as the central bank chief yesterday said the scope for keeping rates steady had "narrowed." Governor Amando M. Tetangco, Jr.’s comments, analysts said, raised the possibility that policy rates would be adjusted -- after being kept a record lows since July 2009 -- before the end of the month. But Finance Secretary Cesar V. Purisima, a member of the policy-making Monetary Board, said the current situation did not warrant a rate hike. Mr. Tetangco, in a text message to reporters, said: "Indeed the scope for keeping rates has narrowed. The BSP (Bangko Sentral ng Pilipinas) will make any further adjustments to policy as and when necessary." Inflation expectations have risen, the central bank chief said, although he noted that "they remain within the inflation target range for this year and the next." Analysts said a policy rate hike would depend on how fast consumer prices rose last month. Inflation accelerated to 3.5% in January from 5% a month earlier and data for February -- a BusinessWorld poll led to a median forecast of 3.85% -- will be released this Friday. The central bank, during its last policy meeting, raised its inflation forecast for 2011 to 4.4% but said there was no reason to hike rates given a 3-5% inflation target. Mr. Tetangco last week said the final February figure could fall between 3-4.1%. BSP Deputy Governor Diwa C. Guinigundo said separately there was scope for policy tightening if inflation expectations started to hover around the upper end of the inflation target. Mr. Purisima, meanwhile, told reporters at the Senate -- where he was attending a confirmation hearing -- that: "We believe that the Philippines’ present situation does not merit or warrant a monetary tightening yet." "We are not at full capacity, unemployment is still high; those are [indications that there is] still room for continued maintenance for the current policy rates. Inflation expectations are still within the policy rates," he added. De La Salle University economist Mitzie Irene P. Conchada said a policy rate hike could be announced during the next Monetary Board meeting on March 24. "It is possible that BSP would hike policy rates to address inflationary pressures, especially with global pressure resulting in events in other countries," she said in a text message yesterday. Benjamin E. Diokno, an economist at the University of the Philippines and a former Budget secretary, said in a telephone interview: "I think if economic growth is still weak and there are inflation concerns, the central bank will have to think about when to raise rates." "Which has more weight for them, economic growth or handling inflation?" he said. Forecastweb, in a note to clients, said "The hawkish tone is merely reinforcing the market’s perception that the BSP is way behind the curve in terms of rate normalization," adding there was a higher chance for a 25 basis point rise this month. "However, given the fragile risk backdrop, continued slide in equities, and lingering uncertainties on how the geopolitical situation will play out in the Middle East, BSP may be tempted to leave rates unchanged again for another month," it said. Bond yields were broadly steady in low volume on Wednesday after Mr. Tetangco’s comments. Two local bond traders said banks had already factored in a rate rise either on March 24 or at the next policy meeting in May. The Philippines is the only major Asian economy not to have raised rates since the end of the global financial crisis, aided by benign inflation in 2010. Its overnight borrowing rate has been at a record low of 4% since July 2009. "The February CPI readings still hold the key to when they’ll do it -- March or May," said Sherman Chan, economist at HSBC in Hong Kong. "In our view, a March rate hike would be the most appropriate, even if the February CPI remains contained." The International Monetary Fund, in a country report, yesterday urged the Philippines to tighten policy and raised its 2011 growth forecast for the country to 5% from 4%. -- reports from LDD, JPDP and Reuters Philippines to keep growing -- IMF It said "high confidence" could boost investment and growth, but also warned that the external environment was "complicated" and would have to be managed. Among others, the IMF said the central bank’s accommodative stance "needs to start being tightened in the near term" given inflation risks. The comments were contained in two country reports that were the product of annual Article IV consultations. Discussions for the 2010 report were held from Dec. 1-10 last year and the process was formally concluded on Feb. 18, 2011. "The economic outlook is generally favorable, with sustained growth and a strong external position," the IMF’s Executive Board said. "A key policy challenge is to preserve macroeconomic stability while enhancing medium-term growth. Meeting this challenge will require a careful exit from stimulus policies in a complicated external environment, and further reforms to promote investment." The IMF, which has a 5% Philippine growth forecast for 2011, said "raising growth towards the government’s 7-8% objective will require a continuation of efforts to rebalance the economy towards investment, particularly private investment, as well as to address impediments to job creation and productivity". It said discussions had focused on five key areas: monetary policy, managing external inflows, fiscal policy, the financial sector, and reforms to enhance growth. With respect to monetary policy, it said the central bank’s accommodative stance had helped support a recovery but a tightening was needed in the near term to forestall inflation risks. "Should a tall risk materialize, such as renewed global turmoil, the timing of monetary normalization could be recalibrated," the report said of IMF staff views made during the consultations. With reserves at adequate levels, the peso "broadly in equilibrium" and last year’s capital inflows likely to persist, meanwhile, the IMF said "there is scope to rely more on greater exchange rate flexibility going forward". The government’s plan to cut the deficit to 2% of gross domestic product (GDP) by 2013 was welcomed and the Fund said "a greater consolidation could be considered", which would necessitate an increase in the tax effort, The financial sector was described as sound and asset bubbles not a concern "so far". Prices, however, need to be watched and further financial market development was recommended to channel external inflows to infrastructure. To enhance growth, the IMF stressed the need to increase investments. In a "special issues" report, meanwhile, IMF staff said the country’s potential growth had increased to around 5% from 3-4% in the 1990s. Measures to raise this towards the government’s 7-8% target in the medium term were offered. In particular, the IMF staff said an increase in secondary schooling years, improved governance, and a further shift to industry and services from agriculture could raise the contribution of total factor productivity -- a measure of an economy’s technological dynamism -- to 3% by 2015 from a historical 2%. The growth contribution of capital, meanwhile, could also be raised via fiscal reforms and business climate improvements that increase the investment rate to 19.5% of GDP by 2015 from a historical average of 15%. The contribution of labor, lastly, could be increased by increased training and search assistance, among others, and continued growth in the industrial and services sectors would be needed to address the need to create jobs. Asked to comment on the IMF country reports, Budget Secretary Florencio B. Abad said the Aquino administration’s priorities involved instituting transparent, accountable and participatory governance; reducing widespread poverty via substantial investments in social protection, basic education and public health; and achieving economic growth through the public-private partnership initiative. |
U.S. Stocks Advance on Signs of Strengthening Labor Market U.S. stocks rose, rebounding from yesterday’s tumble, as signs of a strengthening job market bolstered optimism the economy can withstand a surge in oil. Texas Instruments Inc. (TXN) climbed 3.3 percent as JPMorgan Chase & Co. named the company a “top pick” among chipmakers and raised its recommendation on the industry. Yahoo! Inc. rose 3.3 percent after people familiar with the matter said it may sell a stake in a Japanese venture. Apple Inc. (AAPL) added 0.8 percent as Chief Executive Officer Steve Jobs introduced the iPad 2. Energy shares had the biggest gain in the Standard & Poor’s 500 Index as oil climbed to a 29-month high of $102.23 a barrel. The S&P 500 advanced 0.2 percent to 1,308.44 at 4 p.m. in New York, the third gain in four days. The Dow Jones Industrial Averageincreased 8.78 points, or 0.1 percent, to 12,066.80. Oil rallied 2.6 percent as forces loyal to Libyan leader Muammar Qaddaficounterattacked against rebels. “This is a fairly resilient market,” said Jeffrey Davis, who oversees $5 billion as chief investment officer at Lee Munder Capital Group in Boston. “We’re in a sustainable economic recovery. Without any serious move in oil prices, you’ll probably get a market that has a firm foundation to it. In such a case, any pullback will be minor.” The S&P 500 tumbled 1.6 percent yesterday as concern rising energy costs will hurt the economic recovery offset the fastest manufacturing growth since 2004. Still, the S&P 500 has rallied 25 percent since the end of August as reports showed an improving economy and earnings beat analysts’ estimates for the eighth straight quarter.
Yields on the benchmark 10-year note climbed from a one- month low before the Labor Department issues February jobs data March 4. U.S. securities firmed earlier as crude oil prices rose amid turmoil in North Africa and the Mideast, fueling concern about choking economic growth. The Federal Reserve’s Beige Book report said labor markets improved throughout the country early this year, driven by increasing retail sales and “solid growth” in manufacturing. “There is an increasing conviction that the economy is gaining its sea legs so the bond market is taking a much more defensive posture,” said Edward Lashinski, macro investment strategist at ABN Amro Clearing LLC in Chicago. “This reinforces, particularly combined with the ADP data this morning, that we should see decent employment gains on Friday. This is helping push Treasury yields higher.” Ten-year note yields rose eight basis points, or 0.08 percentage point, to 3.47 percent at 5:05 p.m. in New York, according to BGCantor Market Data. The 3.625 percent security maturing in February 2021 dropped 21/32, or $6.56 per $1,000 face value, to 101 9/32. The yield also touched 3.38 percent, the least since Feb. 1. |
Crude Oil Advances to a 29-Month High, Gasoline Surges on Libyan Concern Crude oil climbed to a 29-month high and gasoline surged on concern that the unrest curbing exports from Libya will spread to other countries in the region. Oil futures advanced 2.6 percent as Libyan forces loyal to Muammar Qaddafi attacked rebels on the east coast where much of the country’s oil is refined and shipped abroad. Prices extended gains after a U.S. Energy Department report showed that crude and fuel supplies fell last week. “Prices are up on concern that the problems in Libya will escalate, taking the remainder of the country’s oil off the market, and spread elsewhere,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “As long as the revolt continues, you are going to see a substantial risk premium in the oil price.” Crude oil for April delivery rose $2.60 to $102.23 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 26, 2008. Futures are up 28 percent from a year ago. Gasoline for April delivery advanced 4.61 cents, or 1.5 percent, to end the session at $3.0295 a gallon in New York. It was the highest settlement since Aug. 27, 2008. Fighting in Libya may have shut as much as 1 million barrels a day of the North African country’s output, according to the International Energy Agency. Rebels regained control of an oil facility in Brega, on the Gulf of Sidra today, driving away government forces, according to a local industry official. Riots have toppled leaders in Tunisia and Egypt, and there have been protests in Yemen to the south of Saudi Arabia, the world’s biggest crude exporter. Websites have called for a nationwide Saudi “Day of Rage” on March 11 and March 20, according to Human Rights Watch. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
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