ING Bank studies impact on inflation, interest rates

‘No rate hike from El Niño inflation push’

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THE ongoing El Niño dry spell, coupled with a mild firming of oil prices, could drive consumer prices higher in the months ahead but not enough to push headline inflation above the government target range and trigger a policy rate hike, ING Bank Manila said in a recent financial markets report.

According to the Philippine Atmospheric, Geophysical and Astronomical Services Administration, the country is now experiencing a mild El Niño effect, which is likely to continue until mid-2015, with the possibility of strengthening toward the end of the year.

Upward price pressures could intensify as El Nino’s impact expands, Joey Cuyegkeng, senior economist at ING Bank Manila, said in a report.

“Offsetting this are relatively abundant rice stocks and the cut in the suggested retail price of chicken,” Cuyegkeng said.


ING Bank also expects oil prices to gradually rise in the coming months, given that prices in Asia have been rising in the past two weeks, hitting a four-month high last week.

“The monetary accommodation in China, the more favorable economic activity in Europe, geopolitical risks and moderation in US oil production may see a sustained gradual increase in oil prices,” Cuyegkeng said.

But even if these factors push price pressures up, inflation expectations are likely to remain within the target range of 2 percent to 4 percent this year up to 2017, the analyst noted.

“This provides BSP leeway to adjust policy settings as needed. Delays in the timing of the Fed rate hike enhance such leeway,” Cuyegkeng added.

At its meeting on March 26, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to hold its key interest rates steady based on its assessment that the inflation environment continues to be manageable.

The BSP kept the rate for overnight borrowing or the reverse repurchase (RRP) facility at 4 percent, while that the rate for overnight lending or the repurchase facility stays at 6 percent.

The special deposit account rate was also frozen at 2.50 percent, while the reserve requirement ratio for banks still stands at 20 percent.

The central bank also revised downward its inflation forecast for full-year 2015 to 2.2 percent from the previous forecast of 2.3 percent. For 2016, it retained the forecast at 2.5 percent.

Consumer prices grew at a slower rate of 2.4 percent in March, bringing the year-to-date average to 2.4 percent.

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