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Just after very strong numbers (above-20% upticks) emerged from investment spending, infrastructure and capital outlays, foreign direct investments, and volume of industrial production index in Q2, the Philippine Statistics Authority reported an underwhelming 6% GDP growth for Q2, a substantial deceleration from 6.6% in Q1. The locus of the weakness came from the demand side, particularly the larger deficit in the trade of goods and services. It could also be attributed to faster inflation which clocked at 5.7% in July, shortly after which Bangko Sentral ng Pilipinas (BSP) raised its policy rates by 50 bps to 4%. The reported slowdown also contrasted with the positive performances of the equities and bond markets.



Muscular real economy indicators, like bulked up growth in infrastructure spending, capital goods imports, and manufacturing output, and foreign direct investments should carry the economy to faster GDP growth in Q2 to at least 7%. This improves on the 6.8% recorded in Q1. The positive data should overcome some negative sentiment—e.g., inflation speeding up, peso under siege—in Q2 and set the stage for the higher growth trajectory for the rest of the year.



Domestic demand will again widely offset weak external demand, as the government’s infrastructure works (+95.9% in April) and PPP project hum, while the manufacturing sector’s growth pace in April (+31.1%, fastest in eight years) and employment gains should boost consumer spending. Inflation, which reached 4.6% in May from 4.5% in April, appears to be peaking. But exports continued its negative streak. The rout of the peso by June will likely reverse after the BSP raised its policy rates by 25 bps to 3.5% on June 20. That may have a sobering effect on the bond and equities markets which had been skidding by June.






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Strategy report: Tighter

September 21, 2018


Corporates are seeing higher rates in the horizon and borrowing now through bonds, commercial papers and long-term deposits. It will be a tighter monetary system because inflation is not peaking anytime soon due to the typhoon devastation and thus the likelihood of BSP’s stronger inflation countermeasure; 50 to 75 basis point policy hike for the rest of the year.

Awaiting Policy Rate Hike

Awaiting Policy Rate Hike

September 14, 2018


We expect the PSEi to continue its downward bias as global trade tension re-emerged after Pres. Trump approved new tariffs worth $200bn of Chinese exports and threatened tariffs on $267bn more Chinese goods. On the domestic front, investors will await the Monetary Board (MB) meeting on Sept. 27 which is expected to raise policy rates by another 50 bps following BSP Gov. Espenilla’s pronouncement of another strong monetary action to support the peso which slumped to a 13-year low of P54.11/$ on Sept. 17 and ensure that inflation will return to BSP’s target of 2-4% by 2019.

Rate hikes ahead

Rate Hikes Ahead

September 14, 2018


Indications in the bid rates of the Bureau of the Treasury’s (BTr) auctions and in the secondary market show that the market is already pricing in a 50-bp hike next week. The latest 10-yr auction, which was fully-rejected, had an average bid rate of 7.64%, almost a full percentage point higher than the last done rate of 6.725%. Furthermore, BSP Governor Espenilla recent statement that the bank will take “strong monetary action” amid rising inflation and uncertainty over impact of recent Typhoon Mangkhut on local prices of goods.











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