Lower Inflation

PHILIPPINES - In Brief 04 Apr 2014 by Romeo Bernardo
Philippine headline inflation slid further to 3.9% in March, bucking market expectations of a slight pickup to 4.2%. This serves to anchor inflation expectations further and gives local monetary authorities more room to manage its exit from loose policy settings. Given relatively tame inflation numbers in the first quarter, we expect full year inflation averaging near the midpoint of the BSP's 3-5% target (from 4.8% previously), especially after the slashing of pass-through electricity charges and the reported glut in global rice supplies that will help cap the cost of Philippine rice imports. The BSP has taken the first step towards policy tightening through a 1% increase (to 19%) in the reserve requirement on bank deposits that came into effect today. That decision was intended to suck up excess liquidity in the system, help bring M3 growth down from 36.4% in February to around 15% by mid year, and dampen risk appetites.

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