Archives: Business World Article

Yields on term deposits inched lower on Wednesday as the offer went undersubscribed ahead of the Bangko Sentral ng Pilipinas (BSP) monetary policy meeting.

The BSP’s term deposit facility (TDF) fetched bids amounting to PHP 105.851 billion on Wednesday, well below the P160 billion on the auction block and the PHP 179.018 billion for a PHP 180-billion offer seen a week ago.

Broken down, tenders for the eight-day term deposits reached just PHP 40.096 billion, lower than the PHP 80 billion auctioned off by the central bank and the PHP 90.542 billion in bids seen the previous week.

Banks asked for yields ranging from 6.4875% to 6.5215%, wider than the 6.495% to 6.52% band seen a week ago. This caused the average rate of the one-week deposits to drop by 0.36 basis point (bp) to 6.5119% from 6.5155% previously.

The one-week tenor was adjusted from the usual seven-day maturity as its settlement date was moved to Aug. 22 due to the Ninoy Aquino Day holiday on Aug. 21, the BSP said.

Meanwhile, bids for the 14-day term deposits amounted to PHP 65.755 billion on Wednesday, also below the PHP 80-billion offering and as well as the PHP 88.476 billion in tenders for the PHP 100-billion offer on Aug. 7.

Accepted rates for the two-week tenor were from 6.47% to 6.57%, also wider than the 6.53% to 6.57% margin seen a week ago. With this, the average rate for the term deposits declined by 0.83 bp to 6.544% from 6.5523% logged in the prior auction.

The BSP has not auctioned off 28-day term deposits for more than three years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the 28-day bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields slipped ahead of the BSP’s rate-setting meeting on Thursday amid recent signals from the central bank governor on potentially keeping rates steady, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Monetary Board will hold its third-to-the-last policy review for the year today (Aug. 15).

A BusinessWorld poll showed that nine out of 16 analysts surveyed expect a 25-bp cut, which would bring the target reverse repurchase (RRP) rate to 6.25% from the current over-17-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. on Tuesday told reporters that there is “more room to stay tight” amid the stronger-than-expected gross domestic product growth seen last quarter.

The Philippine economy grew by 6.3% in the second quarter, its fastest expansion in five quarters or since the 6.4% in the first quarter of 2023.

Mr. Remolona also said that the BSP will have room to ease rates once inflation is back within their 2-4% annual target band.

Headline inflation accelerated to 4.4% in July, the fastest in nine months. It also ended seven straight months of inflation settling within the central bank’s target. — Luisa Maria Jacinta C. Jocson

The Bangko Sentral ng Pilipinas (BSP) on Tuesday said there is “more room to stay tight” after better-than-expected gross domestic product (GDP) growth in the second quarter.

“The 6.3% (GDP growth)… there’s more room to stay tight, right? But there are many factors,” BSP Governor Eli M. Remolona, Jr. told reporters on the sidelines of a Development Budget Coordination Committee briefing at the Senate.

“It’s not like the United States, their economy is weaker. They’re more inclined to ease. That’s just one number. We will look at all (the numbers),” he said in mixed English and Filipino.

The Philippine economy expanded by 6.3% in the second quarter, faster than 5.8% in the previous quarter and 4.3% a year ago. This was also the fastest growth in five quarters or since 6.4% in the first quarter of 2023.

“We look at all the components. Our models take into account different components of GDP,” Mr. Remolona added.

The BSP chief said the latest GDP performance “helps” the case for keeping rates steady as the risk of a hard landing is lessened.

“In the US, the risk for a hard landing is higher, but I also now see less of a hard landing in the US,” he added.

The Monetary Board is set to meet on Thursday for its third-to-the-last policy review for the year.

A BusinessWorld poll conducted last week showed that nine of 16 analysts surveyed expect the Monetary Board to deliver a 25-basis-point (bp) rate cut this week.

During the hearing, Mr. Remolona told senators the 6.5% benchmark rate is “tight.”

“It’s tight because we are trying to tame inflation… the direction is to of course eventually ease monetary policy, which means lower policy rate. So, we intend to ease when the conditions are right… when we feel inflation has been tamed.”

Mr. Remolona said the BSP does not want to keep rates high for an “unnecessarily” long time because this could lead to loss of output.

“As soon as we feel inflation is on the way to our target range, we will have room to ease the policy rate,” he added.

Headline inflation accelerated to 4.4% in July, the fastest in nine months. It also ended seven straight months of inflation settling within the central bank’s 2-4% target.

The BSP earlier said the spike in July inflation is temporary, and that inflation should return to target from August onwards.

For the rest of the year and until 2025, inflation should ease further and settle within target, Mr. Remolona said.

“We are relieved that monetary policy has evidently helped to tame inflation. This is reflected in our inflation projections… We expect average inflation to fall within our target range of 2-4% in 2024 and 2025,” he said.

The BSP expects inflation to average 3.3% this year and 3.1% in 2025. For the first seven months, headline inflation averaged 3.7%.

“We used to think we could ignore supply shocks because they would eventually dissipate. The hard lesson is large supply shocks change inflation expectations, which lead to inflationary second-round effects,” Mr. Remolona added.

Finance Secretary Ralph G. Recto, who is also a Monetary Board member, said he expects policy easing to begin soon.

“As far as my expectations are concerned, I think policy rates are going to be on the way down,” he said.

“It may be tomorrow, it may be in September, it could be in October, but I think for the next two quarters I could safely predict that we could probably reduce rates by 25 to 50 bps. I foresee in the next year and a half, we could reduce by another 100 bps by next year.” – Luisa Maria Jacinta C. Jocson, Reporter

The government made a full award of the Treasury bills (T-bills) it offered on Monday as it saw strong demand and even as rates mostly inched up as the market awaits the Bangko Sentral ng Pilipinas’ (BSP) policy decision this week.

The Bureau of the Treasury (BTr) raised P20 billion as planned from the T-bills it auctioned off on Monday as total bids reached PHP 52.535 billion, or more than twice the amount on offer. This was higher than the PHP 47.298 billion in tenders recorded at the Aug. 5 T-bill auction.

Broken down, the BTr borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 15.29 billion. The three-month papers were quoted at an average rate of 5.9%, 7.2 basis points (bps) above the 5.828% recorded last week. Accepted rates ranged from 5.878% to 5.929%.

The government likewise made a full PHP 6.5-billion award of the 182-day securities as bids for the tenor reached P17.26 billion. The average rate for the six-month T-bill stood at 6.093%, up by 3.1 bps from the 6.062% fetched last week, with accepted rates at 6.074% to 6.1%.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand totaled PHP 19.985 billion. The average rate of the one-year debt inched down by 1.2 bps to 6.062% from the 6.074% quoted for the tenor last week, with the BTr only accepting bids with this yield.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.8429%, 6.1056%, and 6.1977%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The government made a full award of the T-bills as the offer was met with strong demand, with investors seeking to lock in returns from longer tenors in anticipation of the start of the BSP’s easing cycle, a trader said in a text message.

“Treasury bill average auction yields were again mostly slightly higher after the faster inflation rate in July and the faster-than-expected GDP (gross domestic product) growth rate that could reduce the possibility of a BSP policy rate cut as early as Aug. 15,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message on Monday.

Analysts are divided on the Monetary Board’s rate decision this week as faster inflation in July caused BSP Governor Eli M. Remolona, Jr. to take a less dovish policy stance.

A BusinessWorld poll showed that nine out of 16 analysts surveyed expect the central bank to deliver a 25-bp rate cut at Thursday’s review.

This would bring the target reverse repurchase rate to 6.25% and would be the first reduction in benchmark borrowing costs since November 2020, or during the height of the coronavirus pandemic.

The BSP has kept its policy rate at an over 17-year high of 6.5% since October 2023 following cumulative increases worth 450 bps.

The Monetary Board is now “a little bit less likely” to cut rates at this week’s policy meeting following the elevated July inflation print, Mr. Remolona said last week, adding that they remain open to off-cycle moves.

Headline inflation picked up to a nine-month high of 4.4% in July from 3.7% in June, the Philippine Statistics Authority (PSA) reported last week. This was slower than the 4.7% print in the same month a year ago and was within the BSP’s 4%-4.8% forecast for the month.

However, this was the fastest print in nine months or since the 4.9% clip in October 2023. It also marked the first time since November that inflation exceeded the central bank’s 2-4% annual target.

Meanwhile, Philippine GDP expanded by an annual 6.3% in the second quarter, the PSA reported separately last week. It was stronger than the revised 5.8% growth in the first quarter and 4.3% in the second quarter of 2023.

For the first semester, economic growth averaged 6%, hitting the low end of the government’s 6%-7% target.

On Tuesday, the BTr will offer PHP 30 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 11 months.

It wants to raise PHP 220 billion from the domestic market this month, or PHP 80 billion through T-bills and PHP 140 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy

The Bangko Sentral ng Pilipinas (BSP) may cut rates for the first time in nearly four years at its policy-setting meeting this week, according to a majority of analysts polled by BusinessWorld.

A BusinessWorld poll conducted last week showed that nine out of 16 analysts surveyed expect the Monetary Board to deliver a 25-basis-point (bp) rate cut at its meeting on Thursday (Aug. 15), bringing the target reverse repurchase (RRP) rate to 6.25% from the current over 17-year high of 6.5%.

On the other hand, seven others expect the BSP to keep rates steady this week.

The last time the BSP reduced rates was in November 2020, when it delivered a 25-bp cut and brought the key rate to 2% to support economic recovery amid the coronavirus pandemic.

From May 2022 to October 2023, the BSP hiked borrowing costs by 450 bps.

Analysts said that the central bank will likely take into consideration the second-quarter gross domestic product (GDP) growth data, which reflected “anemic” household spending amid high interest rates and elevated inflation.

“We expect the BSP to cut the RRP by 25 bps on Aug 15. We think the BSP took note of the components of second-quarter GDP growth showing a sustained weakness in household consumption demand and sustained anemic performance of private construction,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.

Philippine GDP expanded by 6.3% in the second quarter, faster than 5.8% in the previous quarter and 4.3% a year ago. This was also the fastest pace of growth in five quarters or since 6.4% in the first quarter of 2023.

In the second quarter, household consumption also slowed to 4.6% from 5.5% a year ago. Private consumption accounts for about three-fourths of the economy.

“We expect the BSP to cut rates by 25 bps at the Aug. 15 monetary policy meeting, driven by several factors. While second-quarter GDP growth was strong year on year, the quarter-on-quarter growth of 0.5% fell well below the 1.5% trend, suggesting waning momentum,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

On a seasonally adjusted basis, GDP grew by 0.5% in the second quarter, slowing from 1.1% in the prior quarter.

“The decision remains finely balanced against the strong annual GDP figure and inflation uptick, making the upcoming meeting a close call between maintaining current rates and implementing the expected cut. The outcome will be particularly significant for the Philippines’ economic outlook,” Mr. Roces added.

Metropolitan Bank & Trust Co. Chief Economist Nicholas Antonio T. Mapa said BSP Governor Eli M. Remolona, Jr. has earlier signaled it can cut ahead of the US Federal Reserve.

“If Mr. Remolona adopts a forward-looking approach to monetary policy, we could see the BSP follow through with a rate reduction as early as next week,” he said in a report.

“After carrying out an aggressive tightening cycle in the face of similar US Fed rate hikes and domestic inflation, as well as an ‘emergency’ rate hike last October, it appears Mr. Remolona is pining to cut rates at the soonest opportunity,” he added.

HOLD RATES?

On the other hand, some analysts said they expect the BSP to keep rates steady as the inflation outlook is a bit clouded.

If the BSP holds on Aug. 15, it would mark the seventh straight meeting that the central bank would leave rates unchanged.

“With GDP growth upbeat on an annual basis, but sharply lower quarter on quarter, with a technical recession ‘only’ for consumption, the BSP may delay its rate cut on the 15^th, as policymakers will prioritize the return of disinflation later in the year,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said in an e-mail.

Household spending fell by 0.1% quarter on quarter, extending the 0.2% dip seen in the first quarter.

National Economic and Development Authority Secretary Arsenio M. Balisacan last week said the GDP growth was not as strong as expected, amid the impact of elevated inflation and high interest rates.

Sarah Tan, an economist from Moody’s Analytics, said that the BSP could stand pat amid concerns that inflation could potentially reaccelerate.

“Even though we expect July’s inflation reading to be the peak, the outlook for Philippine inflation has become a little murkier of late. Damage caused by Typhoon Carina could linger over the coming months and electricity rates are also expected to tick up,” she said in an e-mail.

Headline inflation accelerated to a nine-month high of 4.4% in July. The July print also ended seven straight months of inflation settling within the central bank’s 2-4% target band.

For the first seven months, headline inflation averaged 3.7%, above the central bank’s 3.3% full-year forecast.

Mr. Remolona last week said that they are “a little bit less likely” to cut rates at the August meeting amid “slightly worse-than-expected” inflation print.

The central bank chief said they could consider cutting if growth is ‘unexpectedly weak” and if inflation expectations suggest lower inflation going forward. 

Mr. Asuncion expects the BSP to cut rates by October, in line with the Fed’s schedule.

“More broadly, the BSP is unlikely to leapfrog the US Federal Reserve. We expect the Fed’s first rate cut to come in September, with the BSP following suit in October,” Ms. Tan added.

The Fed at the end of July kept the policy rate in the same 5.25%-5.5% range it has been for more than a year but signaled that a rate cut could come as soon as September if inflation continued to cool, Reuters reported.

De La Salle University economist Mitzie Irene P. Conchada also noted other external developments that could prompt the BSP to keep rates unchanged.

“Given the recent developments (slowdown) in the stock market in major economies such as the US, I think the BSP will maintain its rates this Aug. 15.  The possible recession in the US could affect developing economies such as the Philippines,” she said in an e-mail.

OUTLOOK

Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp., said the central bank should be able to push through with its easing cycle for the rest of the year.

“Any inflation uptick for July or even August should not distract from the rate-cutting plan of the BSP as these inflationary trends in July and August are transitory due to the weather disturbance,” he said.

HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said that the BSP could cut rates by a total of 50 bps this year, bringing the benchmark rate to 6% by yearend.

“For 2025, we expect the BSP to ease monetary policy faster than the Fed, reaching the end of its easing cycle at 5% by the third quarter of 2025,” he added.

Analysts also noted the possibility of an off-cycle rate cut.

“An off-cycle BSP rate cut, if the Fed initiates rate easing in September, cannot be dismissed as well. We are expecting a modest 25-bp cut if the BSP does proceed with the off-cycle rate cut,” Mr. Asuncion said.

Mr. Remolona earlier said that they are “always open” to off-cycle rate cuts.

The BSP last delivered an off-cycle move in October 2023, when it hiked rates by 25 bps.

“Still, we won’t be surprised if BSP waits for one or two more inflation prints before they decide to carry out their first 25-bp cut. If not in August, they can do an off-cycle reduction in early September or during their scheduled meeting in October,” Mr. Neri said.

Mr. Mapa said the expected BSP easing could help “reinvigorate investment outlays which have been dominated by government spending of late.”

“If BSP opts to pause next week, we believe the rhetoric from both the BSP governor and Finance secretary suggests that rate cuts may be carried via an ‘emergency’ policy meeting, potentially once the August inflation is reported in early September,” he said.

After Aug. 15, the Monetary Board’s remaining policy-setting meetings this year are on Oct. 17 and Dec. 19. – Luisa Maria Jacinta C. Jocson, Reporter