In 2013 Metrobank Research: Phl inflation to average 3.6%

CEBU, Philippines - Inflation in the Philippines is seen to slightly inch up, albeit still manageable, amid some expected tightness in the supply of some domestic commodity sectors, this according to latest projection of the Metrobank Research department.

According to the report, the stronger peso and global commodity prices will, however, temper any significant increases in consumer prices.

The research indicated that the average full-year inflation rate for 2013 to come in at 3.6 percent.

The first auction for 2013 saw rates for government securities plunge to all-time lows amid still high market liquidity and benign inflation expectations.

At the auction, the yield of the 91-day Tbill fell 14.8 basis points to 0.05 percent from 0.198 percent.

The rate for the 182-day Tbill likewise dropped by 2.2 basis points to 0.3 percent, while rate for the one-year debt paper came in at 0.76 percent, declining by 15.7 basis points.

The national government plans to borrow P120 billion from the domestic market in the first quarter of the year, higher than the P90 billion programmed in the last quarter of 2012, to take advantage of the Philippines’ low interest rate environment.

The government has set a borrowing mix of 80-20 in favor of domestic sources as a step to gradually prune its reliance on foreign debt.

The government is also looking to issue dollar-denominated bonds to local investors this year after a successful issue in 2012. The government raised $500 million from the sale of 2032 dollar-denominated bonds last November.

In the week ending January 11, 2013, the Philippine bourse continued to trek higher as momentum remains to be in favor of the bulls, breaching the 6,000 threshold.

The PSE index gained 80.3 points (+1.34 percent) to finish the week at 6,051.75. Average daily value turnover was at P8.3 billion (ex-blocks). Foreigners were net buyers by P16.2 billion (including blocks).

In developed markets, US equities also managed to close the week on a positive note. For the week, the Dow gained 0.40 percent, the S&P rose 0.38 percent, and the Nasdaq jumped 0.77 percent.

The report added that the attention will be focused on the release of US 4th quarter corporate earnings result, mainly on the US big banks (i.e., Goldman Sachs, JPMorgan, Bank of America, Citigroup, Morgan Stanley, etc.) On the U.S. economic front, news flows due for the week include the CPI, PPI, retail sales, Empire state manufacturing survey, Fed beige book, housing starts, and jobless claims.

On the domestic side, a pullback in the interim is expected as the market is ripe for a correction. The local market is trading on stretched multiples and technical indicators are inching closer to overbought levels.

Last week, sentiment seesawed as yields initially fell, then rose, then fell again. The week initially started strong as the first T-bill auction of the year was awarded at historic low levels.

However, the initial buying frenzy settled down as players took profits on their positions in the long dates as yields climbed by as much as 8 to 10 basis points on the high duration space before finding some tentative support. Midweek, players again started buying longer-dated bonds after some volume buying interest emerged and some fund flows looked to buy government securities.

Apart from this, the Bangko Sentral Ng Pilipinas (BSP) also gave some very supportive comments reiterating its view that inflation would stay benign for the year while growth would be robust.

These comments came after a Deutsche Bank economist shared his view that the central bank may be forced to hike rates as growth would lead to elevated inflation moving forward.

Yields ended the week moderately lower by 1 to 2 basis points in the high duration space on good volume trading.  (FREEMAN)