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NEWS UPDATES Asean Affairs        8 January 2011

UBS sees higher Philippine inflation

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The Philippines is likely to have higher inflation rate, causing interest rate increases this year, according to Union Bank of Switzerland (UBS).

In its Asian Economic Comment, UBS said Philippine inflation would hit 4.1 percent this year, higher than the Bangko Sentral ng Pilipinas' (BSP) projection of 3.6 percent.

"Starting from 3 percent in December this means 5percent inflation by end 2011. The good news is that consensus inflation expectations are already in a similar position, and that this variation would still be within the BSP's target range," UBS said.

"This means that while the BSP should respond, the central bank need not move too aggressively tighten and could probably even wait a few months before appearing 'behind the curve,'" the investment bank said.

The higher inflation forecast would result from fuel prices which increased twice in late December by 4 to 6 percent, higher toll and taxi rates over the New Year, bread and sugar price increases, and a 10 percent hike in electricity rate, UBS said."We believe that

Philippine monetary conditions are loose, but also note that neither credit nor money growth are strong. Likewise while surveyed manufacturing capacity utilization is high, we do not think capacity in the whole economy is unambiguously tight," the foreign lender said.

UBS said that the low interest regime that the country is enjoying would likely be shaken by an increase of 100 basis points, which will have a gradual effect starting in the second quarter of the year.

This increase, the bank said, would likely be in conjunction with reserve ratio increases.

"We doubt the BSP will allow itself to fall behind the curve and project policy rate increases of 100 basis points this year in 25 basis points steps possibly in conjunction with reserve ratio increases, starting in the second quarter," the foreign lender said.


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ASEAN  ANALYSIS

This year in Thailand-what next?

AseanAffairs  
04 January 2011
By David Swartzentruber      

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.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More

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