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Domestic trade in goods grew by 23.1% to PHP 1.31 trillion in 2024, reflecting the uptick in overall economic activity, analysts said.

According to the Philippine Statistics Authority’s (PSA) Commodity Flow in the Philippines report, the value of goods traded rose to PHP 1.31 trillion in 2024 from the revised PHP 1.07 trillion in 2023.

This was a turnaround from the 3.1% contraction in 2023.

By volume, domestic trade likewise rose by 8.4% to 30 million tons from the revised 27.66 million tons in 2023.

The PSA reported that the majority of the commodities that flowed within the country in terms of value were traded through water.

Domestic trade by value is the outflow value of commodities transported from the place of origin to the destination.

Philippine Chamber of Commerce and Industry (PCCI) Chairman George T. Barcelon attributed the increase in domestic trade in 2024 to the economy’s performance.

In 2024, the Philippine economy expanded by 5.6% from 5.5% a year earlier.

Mr. Barcelon said the improved domestic trade data reflect the government’s investments in infrastructure projects and increased foreign direct investments.

In 2024, seven out of 10 traded commodity groups monitored by the PSA grew by value.

Food and live animals, which accounted for the largest share of trade in terms of value at 35.6%, rose by 96.6% to PHP 466.65 billion in 2024. By volume, it climbed by 48.8% to 8.55 million tons.

The value of machinery and transport equipment fell by 15% to P308.23 billion in 2024, accounting for 23.5% of domestic trade. By volume, it declined by 46.5% to 2.89 million tons.

Manufactured goods rose by 12.5% to PHP 175.5 billion. In terms of volume, it grew by 15.6% to 3.95 million tons.

“Food items are still the primary driver of growth of domestic trade, especially as foreign exchange concerns and global supply-chain uncertainty make locally sourced food items more attractive,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc. said in an e-mail.

Mr. Erece also noted that the National Capital Region continues to be the primary hub for higher value-added items, particularly manufactured goods, contributing to the high value of outflows from the region.

Among regions, Metro Manila posted the largest value of traded commodities with total outflows amounting to PHP 451.41 billion for a trade surplus of PHP 225.11 billion.

The National Capital Region (NCR) accounted for 34.4% of the total value of domestic trade in 2024.

This was followed by Western Visayas with traded commodities reaching PHP 313.07 billion for a trade surplus of PHP 134.15 billion. The region accounted for 23.9% of domestic trade.

Central Visayas followed with PHP 135.02 billion, bringing the trade deficit to PHP 101.43 billion.

Meanwhile, in terms of favorable trade balance among the regions, NCR led the regions with PHP 225.11 billion. Western Visayas trailed with PHP 134.15 billion and Central Luzon with PHP 51.69 billion.

On the other hand, regions with the most unfavorable trade balances were Central Visayas (PHP 101.43-billion trade deficit), Calabarzon (PHP 93.69-billion trade deficit) and Caraga (PHP 83.27-billion trade deficit).

According to the PSA, the trade balance is the difference between the outflow value and inflow value.

Mr. Erece said low inflation, especially for food items, may have increased demand for locally sourced goods in the first quarter.

“The increasing international trade tensions and foreign exchange worries can also make local sources a viable alternative to imports,” Mr. Erece said in a Viber message.

He said the ongoing election season will likely boost domestic trade.

“The growth brought by the election season may materialize during the second quarter,” Mr. Erece said. — Abigail Marie P. Yraola

Headline inflation likely settled within a range of 1.7% to 2.5% in March, the Bangko Sentral ng Pilipinas (BSP) said on Monday.

If realized, the BSP’s forecast would be slower than the 3.7% inflation print in March 2024.

At the upper end of the BSP forecast, inflation likely accelerated from 2.1% in February.

The low end of the forecast showed inflation may have slowed below 2% for the first time since the 1.9% print in September 2024. It could also mark the slowest inflation since 1.6% in May 2020.

A BusinessWorld poll of 18 analysts conducted last week yielded a median estimate of 2% for the March consumer price index.

March inflation data will be released on April 4.

“Upward price pressures for the month emanate from higher electricity rates and higher prices for fish and meat,” the BSP said in a statement.

In March, Manila Electric Co. (Meralco) raised the overall rate by P0.2639 per kilowatt-hour (kWh) to P12.2901 per kWh from P12.0262 per kWh in February.

The Philippine Statistics Authority said the price of a kilo of round scad (galunggong) averaged PHP 235.26 in early March, slightly higher than the PHP 226.43 in the previous month. The price of fresh pork belly (liempo) rose to PHP 384.08 per kilo in early March from PHP 375.02 a month earlier.

However, the BSP noted there was a drop in prices of rice and vegetables in March.

“Nonetheless, these are expected to be offset by lower prices of rice, fruits, and vegetables, owing to favorable domestic supply conditions as well as the peso appreciation,” it said.

Rice prices have been on a downtrend due to government interventions and lower global prices. In February, rice inflation decreased to 4.9% from the 2.3% drop in January.

The government had slashed tariffs on rice imports to 15% starting July 2024. The Department of Agriculture (DA) declared a food security emergency on rice, which authorized the National Food Authority to release buffer stocks at subsidized prices.

Starting March 1, the DA also further lowered the maximum suggested retail price of 5% broken imported rice to PHP 49 per kilo from PHP 52 per kilo previously. The MRSP was further reduced to PHP 45 per kilo starting March 31.

“Going forward, the Monetary Board will continue to take a measured approach in ensuring price stability conducive to balanced and sustainable growth of the economy and employment,” the BSP said.

The BSP’s baseline forecasts for inflation are at 3.5% for 2025 to 2026. Accounting for risks, inflation could reach 3.7% in 2026.

The BSP last month opted to keep its key rate steady at 5.75% amid global trade uncertainties.

However, BSP Governor Eli M. Remolona, Jr. has said they are still on an easing cycle, signaling the possibility of a 25-basis-point cut at the Monetary Board’s policy-setting meeting on April 10. — A.R.A. Inosante

Headline inflation likely eased slightly in March as prices of rice and fuel further dropped, analysts said.

A BusinessWorld poll of 18 analysts conducted last week yielded a median estimate of 2% for the March consumer price index (CPI).

If realized, this would be slower than the 2.1% in February and the 3.7% clip in the same month a year ago.

This would also be the lowest monthly inflation in six months or since the 1.9% print in September.

The Bangko Sentral ng Pilipinas (BSP) has not yet released its month-ahead inflation forecast for March.

The Philippine Statistics Authority (PSA) is set to release March inflation data on Friday, April 4.

“For March, I’m looking at 2% inflation as food prices will likely continue to slow down, driven by good weather and further softening in rice prices,” Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said.

Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco gave a March inflation forecast of 2%, citing “low food inflation due to declining rice prices amid monthly price upticks in fish, meat, fruits, and vegetables.”

Rice inflation dropped to 4.9% in February from the 2.3% decline in January. This was the lowest rice inflation since the 5.7% contraction in April 2020.

The PSA had previously said rice inflation could remain in the negative for the rest of the year amid continued interventions by the government.

The government has slashed tariffs on rice imports to 15% starting July 2024.

“The reduction in rice tariffs will help bring prices lower than a year earlier,” Moody’s Analytics economist Sarah Tan said.

The Agriculture department in February declared a food security emergency on rice, which authorized the National Food Authority to release buffer stocks at subsidized prices.

In mid-February, the department also lowered the maximum suggested retail price (MSRP) of 5% broken imported rice to PHP 52 per kilo from PHP 55 previously. This was further slashed to PHP 49 per kilo, starting March 1.

Apart from rice, pork prices are also seen to contribute to the lower inflation print.

“The key driver of the deceleration will come from the food category, especially in the prices of pork and rice,” Ms. Tan said.

She cited the Agriculture department’s move to cap the retail price of pork in March to “insulate the domestic market from rising prices due to the African swine fever that has disrupted supply chains.”

On March 10, the MSRP was set at PHP 380 per kilo for liempo (pork belly) and at PHP 350 per kilo for kasim (shoulder) and pigue (rear leg).

Lower pump prices

Meanwhile, Nomura Global Markets Research analyst Euben Paracuelles noted the decline in energy prices, as well as stable core inflation in March.

In March, pump price adjustments stood at a net decrease of PHP 1.50 a liter for gasoline, PHP 1.10 a liter for diesel and PHP 2.40 a liter for kerosene.

Aris D. Dacanay, an economist for ASEAN at HSBC Global Research, said retail fuel prices fell in March “on the back of softer global oil prices and a stronger peso.”

“Nonetheless, upward price pressures continue in the less-weighted goods and services. Electricity prices were hiked by more than 2%, while the prices of some food items, such as fish and eggplants, steeply rose,” Mr. Dacanay said.

Chinabank Research also said inflationary pressures “stemmed from higher costs of key food items such as meat, fish, and fruits, along with increases in electricity rates.”

In March, Manila Electric Co. (Meralco) raised the overall rate by PHP 0.2639 per kilowatt-hour (kWh) to PHP 12.2901 per kWh from P12.0262 per kWh in February,

Analysts also noted upward price pressures during the month.

Mr. Dacanay said risks to inflation are still tilted to the downside as rice prices still have room to ease.

“Though not our baseline scenario, it is still possible for inflation to breach the lower end target of the central bank’s 2-4% target band,” he added.

Imminent rate cut?

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), said inflation is expected to ease further.

UnionBank’s nowcast models show that monthly inflation is seen settling below 2% until June.

“Without a doubt, the inflation forecasts with the key assumption that these would be close or in line with actual data, support a BSP rate cut of 25 basis points (bps) — 50 bps sooner than later,” Mr. Asuncion said.

“The fear of materially positive real interest rate setting taking root, posing deflationary threats to spending and growth prospects should prompt imminent BSP rate cuts,” he added.

The BSP’s baseline forecasts for inflation are at 3.5% for 2025 to 2026. Accounting for risks, inflation could reach 3.7% in 2026.

“Looking ahead, with inflation running near the lower end of the BSP’s 2-4% target range, we think the central bank could resume its easing cycle at its April 10 meeting,” Chinabank Research said.

“However, it will likely maintain its cautious messaging given persistent inflation risks and increasing global policy uncertainties,” it added.

Ms. Tan said inflation settling around the “low 2%” will support the case for a rate cut in April.

“Another month of subdued inflation gives BSP more than enough reason to finally pull the trigger on a rate cut in April,” Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co., said.

Both Mr. Paracuelles and Mr. Ella also expect the BSP to deliver a 25-bp cut next month.

The Monetary Board had rescheduled its meeting to April 1 0 from April 3 previously.

“I’m sure that the Monetary Board will take this release into account for its next meeting in April and, if we’re right about it staying near the lower bound of the BSP’s target range, then members probably will have the all clear to go for another 25-bp rate cut,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said.

“Of course, events could get in the way, as the planned announcement in Washington of potential worldwide reciprocal tariffs on April 2 could throw more uncertainty into the mix,” he added.

Mr. Taningco said the March CPI will be a crucial data point for the Monetary Board’s decision.

“Other factors to be considered for the upcoming meeting would include global tariffs, international oil prices, and the movement of the US dollar,” he added.

Markets are widely anticipating President Donald J. Trump’s announcement on reciprocal tariffs on April 2.

“The BSP will also have some time to consider the impact of the reciprocal tariffs by the US on the Philippine economy, which is slated to be rolled out from April 2,” Ms. Tan said.

“Further monetary policy easing in the country will help ease the pressure on households’ budgets, which will bring some relief to the domestic economy amid global uncertainties,” she added.

Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc., also noted that the BSP could cut rates “to avoid faltering consumer demand and to boost economic growth.”

“I expect a 25-bp cut, which is a good compromise to boost market activity and to avoid extreme foreign exchange fluctuations,” he added.

On the other hand, Standard Chartered Bank economist and FX (foreign exchange) analyst Jonathan Koh Tien Wei said the central bank could opt to keep rates steady again amid persisting uncertainties.

“In our view, this uncertainty remains high even as USD-PHP is lower and we are still calling for the BSP to pause in April and only deliver the first rate cut in June,” he said.

“The risk to our view is, however, a 25-bp rate cut in April, given recent comments by BSP Governor [Eli M.] Remolona [Jr]. Key to watch will be USD-PHP movements given concerns over imported inflation and inflation expectations.” – Luisa Maria Jacinta C. Jocson, Reporter

The Philippines’ trade-in-goods deficit narrowed in almost four years in February as exports eased while imports declined, the Philippine Statistics Authority (PSA) reported on Friday.

Preliminary data from the PSA showed the country’s trade balance in goods — the difference between the values of exports and imports — reached USD 3.16 billion from the revised USD 5.12-billion deficit in January and the USD 3.56-billion gap a year earlier.

February saw the narrowest trade deficit in 46 months since the USD 3.09-billion deficit in April 2021.

Export receipts rose for the second straight month by 3.9% to USD 6.25 billion February from USD 6.02 billion a year earlier.

However, this pace was slower than revised 6.3% growth in January and the 17.9% surge recorded in February last year.

Meanwhile, imports declined by 1.8% year on year to USD 9.41 billion in February, reversing the revised 11.2% growth in January and the 6.6% rise in February 2024.

It was the sharpest import fall since the 3.3% drop in November 2024.

Year to date, the trade-in-goods deficit widened by 4.6% to USD 8.28 billion from the USD 7.91-billion gap in the January-February period last year.

Outbound sale of goods expanded by 5.1% to USD 12.62 billion in the first two months of 2025, while imports grew by 4.9% to USD 20.90 billion.

The Development Budget Coordination Committee (DBCC) projects 6% and 5% growth in exports and imports, respectively, this year.

“Lowered imports may be because, as rate cuts are anticipated, domestic firms may delay their projects and have lesser need to import materials until then,” Rischelle Alysha T. Legaspi, an economist at Oikonomia Advisory and Research, Inc., said in an e-mail.

She added that the growth in exports may be attributed to “other countries stocking up on supply” as US President Donald J. Trump’s reciprocal tariffs looms on the global market.

“I think it’s partly because of geopolitical aspects… what [Mr.] Trump is doing and what he has done,” Sergio R. Ortiz-Luis, president of Philippine Exporters Confederation, Inc., said in a phone interview.

Mr. Trump has recently threatened to further raise tariffs the US has already imposed on the European Union and Canada if these continue their collaboration in countering his trade policies, Reuters reported.

Since taking office at the start of the year, Mr. Trump has slapped a 20% tariff on all Chinese imports and 25% levy on steel and aluminum imports.

Automobiles manufactured outside of the United States may face a 25% tariff if the White House pushes through with this in the upcoming trade policy announcement on April 2.

Since its easing cycle in August, the Bangko Sentral ng Pilipinas (BSP) slashed benchmark rates by a total of 75 basis points (bps) bringing policy rate at 5.75%.

However, in February during its first policy meeting this year, the BSP kept its policy settings, surprising market expectations and at the same time signaled fewer rate cuts this year.

Headline inflation in February decelerated to 2.1%, bringing the average inflation rate in the first two months to 2.5%, within the central bank’s 2-4% target.

Manufactured goods, which made up the bulk of the country’s exports, grew by 3.6% to USD 5.18 billion in February from USD 5 billion a year ago.

By commodity group, electronic products, which made up 56.3% of exported manufactured goods, rose by 2.5% year on year to USD 3.52 billion.

Semiconductors, which accounted for 41% of outgoing electronic products, declined by 4.1% to USD 2.54 billion.

Exports of other manufactured goods jumped 34.6% to USD 412.60 million, while machinery and transport equipment rose by 13.9% to USD 254.62 million in February.

The United States remained the top destination for Philippine-made goods, with exports valued at USD 986.84 million accounting for 16% of the total.

It was followed by Japan with USD 984.76 million (15.7% share), Hong Kong with USD 873.64 million (14%), China with USD 646.59 million (10.3%), and The Netherlands with USD 347.70 million (5.6%).

Meanwhile, imports of raw materials and intermediate goods, which accounted for 37.8% of the total imports, rose by 1.7% to USD 3.56 billion in February from USD 3.50 billion a year earlier.

Imports of capital goods grew by 1.8% to USD 2.61 billion, while consumer goods increased by 7.7% to USD 1.89 billion.

By commodity group, electronic products had the highest import value at USD 2.11 billion, up 9.8% in February from USD 1.92 billion a year ago.

Imports of semiconductors, which accounted for the bulk of electronic products, went up by 14.8% to USD 1.50 billion.

Imports of mineral fuels, lubricants and related materials, on the other hand, declined by 23.2% year on year to USD 1.32 billion, while transport equipment rose by 12.2% to USD 914.70 million.

China was the biggest source of imports in February with USD 2.46 billion worth of goods, accounting for 26.1% of the total import bill.

It was followed by Japan with USD 841.87 million (8.9% share), Indonesia with USD 803.17 million (8.5%), South Korea with USD 671.99 million (7.1%), and the United States with USD 647.25 million (6.9%).

Both analysts were optimistic in the country’s chances of meeting the government’s growth targets for imports and exports in 2025.

Ms. Legaspi said the country may attain the government’s trade targets this year and that further investments should be made in improving the manufacturing sector.

“Hindrances to these goals, however, would include geopolitical tensions which disrupt supply chains and domestic inflation, which could make us more reliant on imports,” she said.

“We don’t know ’til now what US would do. So, it depends, a big factor is what US is going to do,” Mr. Ortiz-Luis said.

In a research note, Chinabank Research said that external demand may remain subdued moving forward, with risks from elevated uncertainty amid an escalating global trade war and higher US tariffs.

It also added that potential economic slowdown in major trading partners such as the US and China may be a factor.

“This trade gap could widen this year as potential changes in the global trade landscape could hurt export demand,” Chinabank Research added. — M.M.L. Castillo

Department of Trade and Industry (DTI) Secretary Ma. Cristina A. Roque on Thursday expressed confidence the Philippines will not be affected by reciprocal tariffs to be imposed by US President Donald J. Trump.

At the same time, the Philippines is seen to experience moderate spillover effects from US tariff policies, the DBS Bank report said.

Mr. Trump is planning to announce on April 2 reciprocal tariffs targeting countries that are responsible for much of the US trade deficit.

“For now, we do not have any information yet, so it is business as usual. But we feel that we will not be affected as we are allies,” Ms. Roque told reporters on Thursday.

“Our trade deficit with them is very minimal, so it is not something that we (should) worry about for now,” she added.

Data from the Tradeline Philippines showed that the total trade between the Philippines and the US reached USD 20.3 billion last year. The Philippine exports to the US hit USD 12.1 billion, while imports from the US reached USD 8.2 billion. This brought the US trade-in-goods balance — the difference between exports and imports — to a USD 3.9-billion deficit in 2024.

Ms. Roque said that she has already arranged a meeting with her US counterparts to discuss the planned reciprocal tariffs.

According to DBS’ vulnerability heatmap, the overall direct US tariff impact will have moderate spillover risks on the Philippines, as well as Singapore and Indonesia.

“Direct impact from US tariffs is likely to be limited, with Philippines’ contribution to value-add to US imports amongst the smallest versus ASEAN-6 (Association of Southeast Asian Nations) countries, and the size of the bilateral trade surplus (is) moderate versus peers,” according to a report authored by DBS senior economists Chua Han Teng and Radhika Rao.

On the other hand, Thailand, Vietnam and Malaysia are “relatively more vulnerable.”

The DBS report also estimated the potential impact of reciprocal tariffs on gross domestic product (GDP) of ASEAN-6 countries.

“The domestically oriented nature of Indonesia and Philippine economies shields them, limiting the spillover impact to less than 0.3 percentage point.”

In terms of direct impact on growth, DBS estimates the tariffs will only be a “negligible risk” to Philippine economic output.

“While the US is an important trade partner (accounting for 16.6% of the total), exposure to targeted sectors like pharma, and semiconductors, etc. is modest,” it said.

The US is the top destination for Philippine exports. Philippine exports to the US accounted for nearly 17% of total export sales in 2024, while imports from the US were only equivalent to 6.4% of total imports.

However, DBS noted the country’s value-added tax (VAT) rate of 12%, which “leaves the economy open to reciprocal action, albeit the scale is likely to be limited as the weighted average tariff rate on the US is small at 3.3%.”

For the ASEAN-6 region, DBS said economies “face higher direct and indirect risks from tariffs under the current administration.”

“Additionally, in the past six to seven years, the ASEAN-6 region has become more embedded in global supply chains, accompanied by a bigger share in global trade, whilst attracting strong investment interest.”

Mr. Trump’s sweeping tariffs are more “wide-ranging” than the first term, DBS said.

Meanwhile, DBS also flagged the sectors that could possibly be slapped with reciprocal tariffs.

For the Philippines, this includes transportation goods and animal products.

Moving forward, DBS said economies in the region are likely to seek bilateral discussion and concession agreements with the United States.

“A broad range of conciliatory options include diplomatic and other economic steps,” it said, citing bilateral trade agreements and critical mineral agreements.

“Secondly, the region might seek to step up purchases from the US, for instance agricultural inputs, machinery, aircrafts, energy and defense, to balance the trade gaps.”

DBS also called for greater collaboration within the region to soften the blow of tariff moves.

“ASEAN-6 has also maintained a close relationship intra-region, even amid increased foreign direct investment and trade linkages with China over the past decade.”

“Besides trade, strong trade co-operation is also supported by multilateral agreements such as the Regional Comprehensive Economic Partnership trade pact (RCEP) and a potential upgrade to the ASEAN Trade in Goods Agreement (ATIGA), with discussions underway.”

Meanwhile, S&P Global Ratings in a separate report said the Philippines will be less affected by US tariff policies compared with its Asia-Pacific neighbors.

“Australia, Indonesia, New Zealand and the Philippines should be less at risk of US tariffs, as they generally have low import tariffs, no major bilateral goods surplus with the US,” it said.

“As tariffs tend to be levied on goods, trade will be more resilient in economies where a substantial share of exports is of services. This is the case for the Philippines and, especially, India,” it said.

However, the credit rater still noted that the region will face indirect risks from the tariff conflict.

“Slower growth internationally as a result of trade friction and the associated uncertainty will weigh on exports. Also, Asian manufacturers will feel pressure from Chinese manufacturers, as Chinese producers seek alternatives to the US market,” S&P said.

“Despite these external strains, we generally project domestic demand momentum to remain solid, especially in most emerging-market economies. This is important, given the large role that domestic demand plays nowadays in most Asia-Pacific economies.”

S&P Global expects the Philippine economy to grow by 6% this year and 6.1% in 2026, both within the government’s 6-8% target band.

Meanwhile, Foreign Buyers Association of the Philippines (FOBAP) President Robert M. Young said that there may be a “big chance” that the Philippines will not be exempted from the reciprocal tariff due to its tariff rate differential with the US.

“But again, who knows? It’s difficult to read the mind of Trump. However, as I mentioned before, the Philippines should seriously and urgently (and no nonsense) develop and refocus the trade activities and engagement with the other economies,” he said in a Viber message.

“Lesson learned in relying on the US, which is a big mistake,” he added. – Justine Irish D. Tabile and Luisa Maria Jacinta C. Jocson, Reporters

The country’s financial sector is seen to remain robust and is well-positioned to absorb shocks, the Bangko Sentral ng Pilipinas (BSP) said, but noted external headwinds that pose risk to the sector.

“The Philippine financial system remains resilient but faces moderate risks that warrant close monitoring,” the BSP said in its latest financial stability report.

“The propagation of global uncertainties, including heightened geopolitical tensions, evolving monetary policies in major economies, and potential shifts in the United States following the outcome of the presidential elections could impact the Philippine economy.”

In the report, the BSP said the banking sector growth will be supported by ample buffers and stable financial markets.

“Banks have high capital buffers and ample liquidity, which would allow the financial system to absorb potential losses and/or support economic activity,” it said.

“Financial markets are stable with no signs of asset price misalignments and high share of domestic investor participation.”

The Philippines’ international reserves are also deemed adequate and can cushion the country from shocks, it added.

Latest data showed the country’s dollar reserves rose by 3.3% month on month to USD 106.65 billion as of end-February. This was also 4.6% higher than USD 101.99 billion in the same period a year ago.

“On balance, the banking sector remains healthy as characterized by limited endogenous risks or internal weaknesses,” the central bank said.

“Nonbank financial institutions (NBFIs), although small compared with the size of the Philippine banking system, expose banks to common exposure risk through their shared investments and holdings.”

Credit supply is also seen to remain stable amid improved profitability, robust capital base and ample liquidity.

“Although growth is slower than pre-pandemic levels, the banking system is well-positioned to support the domestic economy, with an expansion in its lending portfolio.”

Bank lending jumped by 12.8% to PHP 13.02 trillion in January, its fastest pace in over two years.

Inflationary pressure

However, the BSP flagged global risks such as inflationary pressure and changing economic policies.

It cited the World Uncertainty Index (WUI) and the Global Economic Policy Uncertainty (GEPU) Index, which have been on an upward trend.

“The cost of production materials (especially in the industrial sector) may accelerate due to supply-chain disruptions amid geopolitical instability and lag-effects of global monetary policy easing.”

Primary risk considerations include disruptions in global supply chains and logistics, the BSP said.

Banks also face asset valuation risks, the BSP said, citing elevated nonperforming loans (NPL) and growth in unsecured consumer loans.

The industry’s NPL loan ratio rose to 3.38% in January from 3.27% in December. This was the highest in two months or since the 3.54% in November.

“Recent global uncertainty stems from concerns on geopolitics and economic policies that affect international trade and investment flows.”

“A ‘macro-market disconnect’ — when macroeconomic risks are not properly priced in by market players — could affect asset valuations and may be subject to severe corrections.”

Capital flight is another risk financial markets could face, it added. Foreign investors account for about 46% of trading in the local bourse.

“Portfolio flows reflect investor risk sentiment and translate to FX (foreign exchange) movements. Portfolio investments are vulnerable to outflows.”

Risks also stem from debt servicing and high “maturity walls,” the central bank said.

“Corporate earnings are reverting to pre-pandemic levels. However, increased leverage and sustained funding mismatches especially in large corporates pose vulnerabilities.”

“Significant reliance on bank funding and the degree of interconnectedness among corporates with Domestic Systemically Important Banks (DSIBs) could amplify risks to the financial sector,” it added.

The BSP said the “interconnectedness of large conglomerates to the banking system may expose the financial system to risks coming from the corporate sector given increasing leverage and funding mismatches.”

The sector also faces emerging risks from financial technology such as artificial intelligence adoption.

“While innovations can enhance efficiency and financial inclusion, the increasing influence of technology also introduces new challenges, such as cybersecurity threats, operational risks, system failures or algorithmic errors, and biases that could undermine regulatory compliance.”

Meanwhile, the BSP noted further monetary easing, which would also bolster the financial system’s growth.

“The transition towards an accommodative interest rate environment could encourage investment in capital-intensive projects, business expansion, and household consumption.”

“Looser financing conditions could pave the way for enhanced credit availability for businesses and consumers to ramp up investments and rebuild savings as buffer to shocks.”

The BSP began its easing cycle in August last year, cutting rates by a total of 75 basis points (bps) by end-2024.

Despite delivering a pause last month, the central bank has said it is still on an easing trajectory. BSP Governor Eli M. Remolona, Jr. has signaled the possibility of a 25-bp cut at the Monetary Board’s meeting on April 10.

“Priority measures could enhance the stability and resilience of the Philippine financial system if aligned with monetary policy and banking supervision,” the BSP said.

It also called for the further enhancement and deepening of capital markets; improvement of reporting frameworks; and development and adoption of macroprudential tools. — Luisa Maria Jacinta C. Jocso