Philippine inflation soars, raises pressure on c.bank
MANILA, June 5 (Reuters) - Philippine annual inflation soared to a nine-year high of 9.6 percent in May, above market expectations, pressuring the central bank to boost interest rates on Thursday for the first time in nearly three years.
Following the data, the peso dropped through key support at 44 per dollar to its lowest level since last October, prompting the central bank to intervene by selling dollars, currency traders said.
The central bank had earlier forecast consumer prices would rise 8.8-9.6 percent year on year and a Reuters poll had produced a median forecast of 9.1 percent.
Yet another jump in the price of food and fuel sent the figure to the top of the central bank's range.
Food prices soared 14.3 percent year-on-year in May with the prices of the national staple rice climbing nearly 32 percent, the National Statistics Office said. Fuel and utility prices surged 8.2 percent.
On the heels of such red-hot price rises, some economists were convinced the central bank would raise rates by 25 basis points when it meets later on Thursday. It would be the first rate rise in nearly three years.
"We do think this increases the chance of a 25 basis point increase," said Frederic Neumann, an economist at HSBC.
"At the margin, the central bank may even raise it by 50 basis points. However, we think they will deliver on the 50 basis point increase only by the third quarter."
But others said the central bank may wait for later in the year.
Vishnu Varathan, economist at Forecast Pte, said: "The caveat is that signs of second round effects will be the trigger and the central bank indicates that there are no signs of one yet."
"I am sticking to my 'no change' call."
Earlier this week, half of 12 economists polled by Reuters said the central bank would raise its key rates by at least 25 basis points on Thursday, the first increase since October 2005.
The remaining six said the central bank would keep its powder dry and wait to see whether recently announced wage increases were further stoking inflation.
PESO WEAKENS
After the announcement of inflation data, the peso PHP= weakened to break through 44 to the dollar, prompting an immediate response from the central bank to sell dollar in support of its currency. Continued...
