The Week Ahead - Inflation data, China LPR, Central Banks

Economists expect inflation to decline 0.5% in February although crude oil is in the mid-US$60 (RM250).

Inflation data

THE Statistics Department is expected to report on the consumer price index (CPI) for February 2021 on Wednesday.

Economists expect inflation to decline 0.5% in February although crude oil is in the mid-US$60 (RM250).

CPI declined 0.2% in January 2021 to 122.1 as against 122.4 in the same month of the preceding year.

The government decided to cap the retail prices of RON95 petrol and diesel at RM2.05 and RM2.15 per litre respectively last month to protect consumers from the effects of any drastic spike in oil prices.

ING says a common thread in most inflation data lately is the transmission of rising global oil prices into domestic fuel and transport prices and a further broadening out to other inflation components.

It adds that Malaysia and Singapore are standouts for the administrative fuel price hikes. However, ING points out that the dampening effects of the Covid-19 movement restrictions on consumer spending have outweighed higher fuel prices and this pushed headline inflation deeper into negative territory in February.Meanwhile, Bank Negara is expected to release its international reserves as at March 15 today.

China LPR

THE People’s Bank of China (PBoC) will decide on its one-year and five-year loan prime rates (LPR) this week.

The one-year LPR was last at 3.85%, and the five-year rate stood at 4.65%.

According to a Bloomberg poll, it is again a unanimous agreement among all the 22 economists for the one-year LPR and the five-year LPR fixings to be unchanged at 3.85% and 4.65% respectively.

UOB Global Economics & Markets Research also shares the same view noting that China has said there would be “no sudden U-turn” of policy operations though emphasising that monetary policy would be more flexible despite the recent draining of liquidity from the system.

Targeted support for key sectors and weaker parts of the economy is needed given an expected easing of fiscal support, risk from rising bond defaults and the Covid-19 uncertainty.As such, UOB maintains its forecast for an unchanged LPR for the rest of 2021.

Watch the central banks

BANK of Thailand (BoT) and Bangko Sentral ng Pilipinas (BSP) will decide on their policies this week.

All the 11 economists in a Bloomberg survey, expect the BoT to keep the policy rate steady at 0.5%.

ING does not anticipate any policy actions at the two central bank meetings in the Philippines and Thailand.

Even so, there will be a great deal of interest in BSP’s meeting as inflation has exceeded the 4% policy limit in recent months, while the raging Covid-19 spread is taking a toll on economic growth.

ING believes BSP will see through inflation and instead focus on growth. ING anticipates the BSP leaving the interest rate policy on hold throughout 2021.

UOB expects BSP to extend its rate pause until year-end for now.

The seven economists polled expect the BSP to keep the overnight reverse repurchase rate steady at 2.0%.

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