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NEWS UPDATES Asean Affairs        19  February 2011

Credit Suisse expects Philippine interest rate hike

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THE Bangko Sentral ng Pilipinas (BSP) will likely start raising key interest rates in the second quarter this year to ensure that inflation worries do not get embedded in the market psyche, a Swiss investment bank said.

In a research note, Credit Suisse said the BSP will call for a 25 basis points increase in its policy rates in the second quarter and another 25 basis points before the year ends for a total of 50 basis points for 2011.

“BSP is getting closer to raising rates, now a hike next month can’t entirely be ruled out. The BSP could toy with the idea of doing a token hike sooner rather than later [even if it may decide to thereafter pause to ‘wait and watch’]. Our base case right now, however, is for them to raise in the second quarter, and for a total of 50 bps in 2011,” Credit Suisse said. The Swiss financial firm noted that the BSP’s stance to keep the rates unchanged during the February 10 meeting of the Monetary Board was expected.

“The] move was widely expected and as we’d highlighted post our meeting with the BSP, the central bank feels that there are various factors [such as well-behaved core inflation ‘so far,’ non-negative real rates, modest bank lending growth, etc.] that justify it keeping rates unchanged even as other central banks in the region are in tightening mode,” Credit Suisse said. Last week, monetary authorities decided to keep the overnight borrowing and lending rates at 4 and 6 percent, arguing that prevailing price and output conditions are manageable and that the current stance is appropriate “for the time being.”

“Many have been worried and are of the opinion that the BSP has been oblivious to inflation risks and is ‘behind the curve.’ We expected BSP to adjust up its inflation forecast for 2011 and this upward revision by the central bank should be some sort of a relief to market participants,” Credit Suisse said.

It said the recent uptick in global commodity prices and the sooner than expected hike in transport fares had suggested an upside to its estimates and consensus for 2011 inflation of 4.1 percent and 4.2 percent, respectively, adding that the BSP’s latest projection of 4.4 percent is no longer behind-the-curve.

“BSP is now trying to contain market anxiousness by talking hawkish,” Credit Suisse said.

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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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