RP stocks retreat on worries of rate hike


Posted at Jun 05 2008 02:31 PM | Updated as of Jun 05 2008 10:31 PM

Stocks closed weaker Thursday on fears that the central bank would lift its interest rates after the government announced that inflation last month accelerated at its fastest pace in nine years.

"The drop in the market highlighted the faster-than-expected inflation, which makes the possibility of the central bank raising its rates bigger," said Jonathan Ravelas, Banco de Oro chief strategist.

Shortly before the opening bell, the government released data that showed annual inflation in May rose to 9.6 percent, the upper end of the central bank's forecast range.

The May number brings average inflation for the first five months to 6.92 percent, well above the central bank's 2008 target of 3.0-5.0 percent.

"The market though is still digesting the data. We may see more movement in stock prices tomorrow," Ravelas said.

The main index fell 54.70 points or 1.97 percent to 2,718.42.

The broader all-share index lost 26.84 points or 1.56 percent at 1,697.07.

Losers thumped gainers, 73 to 21, while 62 stocks were unchanged.

A total of 1.82 billion shares worth P2.6 billion were traded.

The central bank is widely expected to raise key interest rates in a meeting later Thursday, after keeping rates steady at 5.0 percent for overnight borrowing and 7.0 percent for overnight lending in two consecutive meetings previously. Most economists are betting on a quarter-percentage-point increase.

"High interest rates would mean higher cost of doing business for companies. This would impact their earnings," noted Ravelas.

Market heavyweight Philippine Long Distance Telephone Co. dropped P50 or 1.95 percent to P2,510.00.

Ayala Corp., the country's biggest and most diversified conglomerate, plunged P17.50 or 5.3 percent to P310.00.

Interest-rate sensitive property and banking issues also closed in the red.

Leading property developer Ayala Land Inc. retreated P0.25 or 2.4 percent to P10.25. Filinvest Land edged down P0.02 or 2.2 percent to P0.91 while Megaworld Corp. tumbled P0.10 or 5.3 percent to P1.78.

Banco De Oro Unibank Inc. lost P1.50 or 3.2 percent at P46.00 while Bank of the Philippine Islands sagged P0.50 or 1.0 percent to P52.00.