The Week Ahead -Inflationary pressure, China LPR, flash points

Bank Negara is expected to announce its international reserves as at Feb 15 tomorrow.

Inflationary pressures

THE consumer price index (CPI) for January 2022, due to be released on Thursday, is forecast to ease.

Inflation in December 2021 rose 3.2% to 124.5 as against 120.6 in the same month of the preceding year.

This was due to the base effect last year.

A Reuters poll of economists had forecast a 2.3% increase.

The inflation rate is expected to be 3.2% by the end of this quarter, according to Trading Economics global macro models and analysts expectations.

Bank Negara is expected to announce its international reserves as at Feb 15 tomorrow.

Meanwhile, the earnings season will move into high gear this week.

Reports from market heavyweights such as Petronas Dagangan Bhd, Axiata Group Bhd, IOI Corp Bhd, Petronas Chemicals Group Bhd, Genting Bhd, Genting Malaysia Bhd and Telekom Malaysia Bhd are expected.

China LPR fixing

ACCORDING to a Bloomberg poll, there is nearly unanimous agreement among all the 16 economists polled for the one-year loan prime rate (LPR) and the five-year LPR fixings to be unchanged at 3.7% and 4.6%, respectively.

While UOB Global Economics & Markets Research thinks the People’s Bank of China (PBoC) has room to lower the LPR further, any further cuts will likely be small.

UOB thus factors in another 15-basis-point (bps) cut to the one-year LPR in the first half of 2022 and the PBoC is likely to be on hold thereafter in the second half of 2022.

Another 50bps reduction in the banks’ reserve requirement ratio or RRR is also likely in the pipeline, UOB said.

Flash PMIs

FEBRUARY’S flash purchasing managers’ index (PMI) will be released across the United States, United Kingdom, eurozone and Asia Pacific economies, including Japan and Australia.

IHS Markit said January’s figures told of slowing growth and persistent price pressures for the global economy.

It said the February PMI readings would be keenly watched amid disruptions from the Omicron wave across the different developed countries.

BoK, RBNZ decisions

THE Bank of Korea (BoK) and Reserve Bank Of New Zealand (RBNZ) are expected to meet this week for monetary policy decisions.

According to a Bloomberg survey, all three economists polled expect the BoK to keep its policy rate unchanged at 1.25%.

UOB expects the BoK to stay put at this meeting and project another 50bps rate hike this year, given the hawkish posturing, likely with 25bps each in the second and third quarters.

UOB said the inflation readings in New Zealand reinforced its view that the official cash rate (OCR) would need to be lifted further.

UOB is pencilling in another 25bps hike at the February meeting and then looking for a follow-up 25bps hike in May, August and November this year.

Meanwhile, it has been reported that the RBNZ’s monetary policy is very stimulatory because its funding programme for banks, introduced in 2020 to deal with the impact of Covid, will continue until December 2022.