Thursday, April 21, 2011

Upside inflation risks remains, to peak 3.4% in June

KUALA LUMPUR:'' CIMB Economics Research expects inflation to continue to remain high in the months ahead with cost-induced elements a key contributor.

'We retain our inflation estimate of 3.0% for this year and expect it to hit a peak of 3.4% in June before easing to between 3.0% and 3.2% in 2H11, assuming a small increase in fuel prices,' it said on Thursday, April 21.

CIMB Research said the timing and magnitude of the administered price adjustments remain a swing factor for inflation.

It said the country's headline inflation edged higher to 3.0% on-year in March (2.9% in February), in line with its and consensus estimates of 3.1%. In the first quarter of this year, consumer inflation doubled to 2.8% from 1.4% a year ago, indicating the sustained build-up of price pressures.

Food inflation remained firm at 4.7% in March while transport prices also climbed higher to 4.6% (4.5% in February).

'The 20 sen/litre hike in RON97 petrol will add more pressures to transport prices in April. Prices paid in restaurants and cafes also saw a sustained rise of 5.4% in March, largely reflecting the carry-through effect of a 1% rise in service tax to 6%,' it said.

CIMB Research said rising inflation in February-March has pushed the real policy rate into negative terrain, which could lead to excessive risk-taking and leverage if low real interest rates stay too long.

'While we expect the central bank to raise interest rates to restrain inflation expectations, the rates will remain 'supportive' to safeguard economic growth. We maintain our OPR target of 3.25% by end-2011 and expect the first rate hike of 25bp in 2Q-3Q.

'We also expect a further rise in the statutory reserve requirement (SRR) ratio from 2.0% currently to 4.0% over the next six months in a pre-emptive move to manage the risk of excess liquidity,' it said.

No comments:

Post a Comment