| Banks told to hike reserves MONETARY AUTHORITIES ended a run of policy rate hikes yesterday but raised the bank reserve requirement in the continuing effort to control inflation. The one-percentage-point increase in the reserve requirement to 20%, to take effect on June 24, is a "preemptive move to counter any additional inflationary pressures from excess liquidity," central bank Governor Amando M. Tetangco, Jr. said. Deputy Governor Diwa C. Guinigundo added, "The hike in reserve requirement is seen to siphon P38 billion in deposits and 0.9% in domestic liquidity." Majority of analysts earlier polled by BusinessWorld expected another 25-basis-point (bps) rate hike. The rest, however, said the Bangko Sentral ng Pilipinas (BSP) would hold off from a third consecutive adjustment given a first quarter growth slowdown and May inflation hitting the lower end of the central bank’s forecast for the month. Earlier this month, the BSP reported that domestic liquidity had grown by 7.3% in April to P4.2 trillion. The expansion, however, was down from March’s 10.3%. "[E]xpectations of continued strong capital inflows, driven by positive market sentiment over the favorable prospects for the Philippine economy, could fuel domestic liquidity growth and contribute to inflation risks," Mr. Tetangco said. Foreign portfolio investments -- also known as "hot money" given the ease with which the funds can be placed in and pulled out of an economy -- surged to $2.02 billion as of May 27, up from $748.98 million during the comparable 2010 period. Mr. Guinigundo said, "Uncertainty in the monetary environment, coupled with multispeed economic recovery of advanced economies and growth rebalancing," had led to the increase in inflows. "Without the hike in reserve requirement inflation would have averaged at 5.06% in 2011 and 3.9% in 2012," he said. "Now, it (inflation) is again well within our 3-5% target for this year and the next, with inflation for this year averaging at the upper bound of the target and next year at the lower bound." The rise in consumer prices is now expected to peak later in the year instead of the second or third quarters. "Inflation will reach its peak in the last months of the year starting in October," Mr. Guinigundo said, adding that the new forecast took into account "lower than expected" April and May inflation numbers as well as new crude oil price assumptions. Asked why the BSP had opted for the reserve requirement move, he said it would "enhance the effects of previous and future, if any, rate hikes. Moreover, the hike ... squarely deals with the liquidity coming from other sources, which is now our concern." "This is a very gradual and calculated move. Besides, bank lending [which grew by 14.2% in April] remains robust and [the] 1% hike will not impact financial intermediation costs much," he added. Mr. Guinigundo also said the BSP was of the opinion that there was enough room in the economy to absorb the reserve requirement increase. Sought for comment, Rizal Commercial Banking Corporation Senior Vice-President and Treasurer Marcelo E. Ayes said, "This is an aggressive move; it’s a sign that they are serious in fighting inflation." "This is a preemptive stance and will be good in the longer-term, but of course [it] will have short term effects like higher costs of intermediation," he added. Security Bank Executive Vice-President and Treasurer Rafael S. Algarra, Jr., for his part, said: "It, basically, has the same effect as tightening monetary policy. At the very least, the BSP is telling the market that they’re trying to resolve the issue of excess liquidity." Fresh data, the BSP said, would be considered when the policymaking Monetary Board next meets on July 24. "The Monetary Board emphasized that risks to the inflation outlook remain, which will continue to warrant vigilance from the BSP. The BSP, therefore, remains prepared to implement further monetary measures as necessary to safeguard price stability," Mr. Tetangco said. The BSP ordered rate hikes of 25 bps each in March and May in a bid to keep inflation within the 3-5% target for this year. Its overnight borrowing and lending rates now stand at 4.5% and 6.5%, respectively. -- A. S. O. Alegado |
U.S. Stocks Advance on Improved Economic Reports U.S. stocks rebounded, a day after the Standard & Poor’s 500 Index declined to a three-month low, as better-than-estimated housing starts and jobless claims reports tempered concern about a slowdown in the economy. A gauge of 12 homebuilders in S&P indexes rallied 1.6 percent. Kroger Co. (KR) advanced 4.5 percent after the largest U.S. grocery chain raised its full-year profit forecast. Southern Union Co. (SUG) soared 18 percent as Energy Transfer Equity LP agreed to buy it for $4.2 billion in the largest purchase of a pipeline company this year. Benchmark indexes erased gains earlier today amid concern big banks will face larger capital increases to comply with proposed international regulations. The S&P 500 rose 0.2 percent to 1,267.64 at 4 p.m. in New York. The benchmark gauge for American equities is still up 0.8 percent this year. The Dow Jones Industrial Average advanced 64.25 points, or 0.5 percent, to 11,961.52 today.
Five-year notes advanced as Greece’s Prime Minister George Papandreou pleaded with his allies in parliament to back his austerity plans after yesterday’s debt rally pushed yields down the most in a year. Bonds got a boost as a report showed manufacturing in the Philadelphia region unexpectedly shrank. “With the situation in Greece still unstable, investors are moving into Treasuries,” said Kevin Flanagan, chief fixed- income strategist at Morgan Stanley Smith Barney in Purchase, New York. “The economic numbers continue to come in a little bit softer than expected on balance.” Yields on 10-year notes dropped four basis points, or 0.04 percentage point, to 2.93 percent at 5:00 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 3.125 percent security due in May 2021 rose 11/32, or $3.44 per $1,000 face amount, to 101 21/32. The 10-year yields fell earlier to 2.88 percent, the lowest level since Dec. 1. Two-year yields were little changed at 0.38 percent after touching 0.34 percent, the lowest level since Nov. 5. The record low of 0.3118 percent was set Nov. 4. Five-year yields slid two basis points to 1.53 percent after dropping 14 basis points yesterday, the most since June 2010. |
Oil Gains for Second Day on U.S. Economic Reports; Heads for Weekly Drop Oil gained for a second day in New York after reports showed U.S. housing starts rose more than forecast in May and fewer Americans filed applications for unemployment benefit, signaling fuel demand may increase. Futures climbed as much as 0.3 percent after gaining 0.2 percent yesterday as the Labor Department said jobless claims fell by 16,000 to 414,000 in the week ended June 11. Work began on 560,000 houses at an annual pace, up 3.5 percent from the prior month and exceeding the 545,000 median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed. Oil pricesare down 4 percent this week. “It’s always good to see a drop in the number of new jobless claims and a rise in housing starts,” said Peter Beutel, the president of Cameron Hanover Inc., an energy advisory company in New Canaan, Connecticut. The employment and housing outlook remains poor, he said. “We’re a long way from seeing them be engines of growth in the economy.” Crude for July delivery climbed as much as 32 cents to $95.27 a barrel in electronic trading on the New York Mercantile Exchange at 9:09 a.m. Sydney time. The contract yesterday gained 14 cents to $94.95, the highest since June 14. Prices are heading for the biggest weekly decline in six weeks. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
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