PSEi advances after better job data, rate cut view

The Philippine Stock Exchange Index (PSEi) recovered on Tuesday after the local statistics agency reported better employment data for November.

The possibility of interest rate cuts this year also lifted investor sentiment, analysts said.

The main index added 0.14% or 9.3 points to close at 6,618.52. The broader all-share index gained 0.11% or 4.17 points to 3,503.68.

Better employment figures lifted investor sentiment, Mikhail Philippe Q. Plopenio, research and engagement officer at Philstocks Financial, Inc. said in a Viber message.

“The local market inched up by 9.3 points to 6,618.52 as investors took positive cues from Wall Street overnight amid the decline in the US long-term treasury yields,” he said.

“The labor data for November were also cheered by many as it showed strong figures, with the employment rate rising to 96.4% from the preceding month’s 95.8%,” he added.

He said the local bourse was in positive territory for the whole session, but heavy selling occurred before the closing bell, trimming the gains, Mr. Plopenio said.

The Philippine Statistics Authority said the Philippine unemployment rate further eased to 3.6% in November from 4.2% a month and a year earlier.

The market improved after Finance Secretary Benjamin E. Diokno recently said the Philippine central bank might cut borrowing costs by as much as 100 basis points (bps) this year amid cooling inflation, Luis A. Limlingan, head of sales at Regina Capital Development Corp. said in a Viber message.

“Philippine shares traded higher and at one point flirted with the 6,700 level as investors assessed how to readjust their portfolios given that interest rates would soon be coming down,” he said.

At its December meeting, the BSP kept the benchmark rate steady at a 16-year high of 6.5%. Inflation rate averaged 6% in 2023, compared with a year earlier.

Most sectoral indices declined. Mining and oil fell by 1.2% or 116.95 points to 9,620.02; industrials lost 0.63% or 58.84 points to 9,199.61; services retreated by 0.13% or 2.17 points to 1,639.56; and holding companies fell by 0.12% or 8.12 points to 6,378.27.

On the other hand, the financial index added 1.12%or 19.94 points to 1,786.60, while the property index gained 0.64% or 18.58 points to 2,898.02.

“Among the index members, San Miguel Corp. was at the top, climbing 4.11% to PHP 114. Converge ICT Solutions, Inc. lost the most, dropping 3.61% to PHP 9.35,” Mr. Plopenio said.

Value turnover improved to PHP 5.75 billion with 405.37-million issues changing hands, compared with PHP 4.28 billion and 412.88 million issues on Monday.

Advancers outpaced decliners 81 against 76, while 67 issues were unchanged.

Net foreign buying climbed to PHP 915.94 million from PHP 160.66 million a day earlier. — By Revin Mikhael D. Ochave, Reporter

Gov’t eyes global bonds in 1st half

The government is eyeing the launch of foreign currency-denominated bonds before end-June, amid expectations of easing interest rates, Finance Secretary Benjamin E. Diokno said.

“Maybe towards the end of the first semester. We will try to look at the market situation. We’re not in a hurry to raise that yet because we expect interest rates to go down,” Mr. Diokno said in an interview with Bloomberg Television on Monday.

He said the government is planning to raise around PHP 5 billion (around PHP 277 billion) from the issuance of foreign bonds this year.

The government set its borrowing program at PHP 2.46 trillion this year, of which PHP 606.85 billion will come from external sources.

In 2023, the Philippine government raised USD 3 billion from its dollar bond issuance in January and USD 1.26 billion from its retail dollar bond offering in October. It also generated $1 billion from its inaugural Sukuk bond issuance, which was settled in December.

The government borrows from local and external sources to help fund a budget deficit capped at 5.1% of the gross domestic product (GDP) this year.

Mr. Diokno said that the government is so far on track to bring down its deficit-to-GDP ratio, which stood at 5.71% as of end-September 2023. The Marcos administration is targeting to lower the ratio to 3% by 2028.

“On the revenue (side), we are on track. We have even exceeded our revenue target (for 2023) and we expect that to happen (this) year because we have several tax measures pending in the upper House. I expect those tax measures to be approved by the first quarter of this year,” he said.

Latest data from the Treasury showed that the National Government’s budget deficit narrowed by 10.1% to PHP 1.11 trillion in the January-November period.

State revenues rose by 8.8% to PHP 3.6 trillion, accounting for 95.58% of the PHP 3.729-trillion target set for 2023.

For this year, the Development Budget Coordination Committee expects revenues to hit PHP 4.235 trillion, equivalent to 15.5% of GDP.

The Department of Finance (DoF) earlier said that its priority measures could generate as much as PHP 120.5 billion in additional revenues this year.

These measures include the Passive Income and Financial Intermediary Taxation Act (PIFITA), a value-added tax (VAT) on digital service providers, a new mining fiscal regime, motor vehicle road user’s tax, as well as an excise tax on single-use plastics, pre-mixed alcohol, sweetened beverages and junk food.

The PIFITA, VAT on digital transactions, and excise tax on single-use plastics are currently pending at the Senate committee level, while the excise tax on pre-mixed alcohol is still pending at the House Ways and Means Committee.

“We’re fairly comfortable with the new taxes plus increased revenue efficiency collection. We just approved the Ease of Paying Taxes Act, which was just signed by the President. We expect to be on track with revenue,” Mr. Diokno added.

President Ferdinand R. Marcos, Jr. last week signed into law Republic Act No. 19976 or the Ease of Paying Tax Act, which aims to streamline the tax system.

Under the law, tax returns may now be filed electronically or manually. It also introduces a system that puts taxpayers into micro, small, medium or large categories; and classifies VAT refund claims as low, medium, or high risk.

On the expenditure side, Mr. Diokno said government agencies must ensure “quality spending.”

“We expect around 6% of GDP to be devoted to infrastructure projects, which the economy needs,” he added.

In the 11-month period, government expenditures increased by 3.6% to PHP 4.68 trillion. This accounted for 89.42% of the full-year program.

Economic managers are targeting 6.5-7.5% GDP growth this year. — Luisa Maria Jacinta C. Jocson

BSP may cut rates by up to 100 bps this year

The Bangko Sentral ng Pilipinas (BSP) may cut borrowing costs by as much as 100 basis points (bps) this year as inflation is seen to stay mostly within the 2-4% target band, the Philippines’ Finance chief said on Monday.

Finance Secretary and Monetary Board member Benjamin E. Diokno said the BSP could mirror the policy moves of the US Federal Reserve this year.

“So, a 75-basis-point cut by the Fed this year could actually be matched by the central bank. Or even 100 bps. Right now, the policy rate is at 6.5%, so I see something like 5.5% by the end of 2024,” Mr. Diokno said in an interview with Bloomberg TV.

“The timing, of course, would be data dependent and probably towards the second semester.”

The BSP kept the benchmark rate steady at a 16-year high of 6.5% at its December meeting. This was after the Monetary Board tightened rates by 450 bps from May 2022 to October 2023 to tame inflation.

Inflation averaged 6% in 2023, higher than 5.8% in 2022. It marked the second straight year that average inflation breached the BSP’s 2-4% target.

According to Mr. Diokno, inflation is expected to be within the 2-4% range throughout the first quarter of the year.

“Inflation might increase slightly in the second quarter because of base effects. But for the whole year of 2024, it will be within the target band of 2-4%, so that’s good news,” he said.

The central bank expects full-year inflation to ease to 3.7% this year and 3.2% in 2025, according to its baseline inflation forecasts.

Mr. Diokno noted the inflation rate for 2025 may continue to be within the 2-4% range, or around 3.5%.

Policy to remain tight
Meanwhile, Fitch Solutions’ BMI Country Risk & Industry Research said inflation would likely average 3.9% this year.

BMI said the Philippine central bank would likely keep policy tight in the first half, with rate cuts seen only in the second semester.

“We think rate cuts will only materialize in the second half of 2024 at the earliest, in line with our expectations for the US Federal Reserve… A quick return to easing before the Fed could dislodge inflation expectations and weaken the peso — something which the BSP will be mindful to avoid,” BMI said in a report dated Jan. 5.

The US Federal Reserve kept borrowing costs unchanged at 5.25-5.5% at its policy meeting last month, but signaled rate cuts this year.

BMI said the Philippines’ growth momentum “reduces the urgency for the Monetary Board to cut lower interest rates.”

“This 2024 is set to be a stellar year and we forecast the economy to expand by 6.2%. This provides the BSP with more room to keep interest rates at multi-year highs for some time,” it said.

The government has set its 2024 growth target to 6.5-7.5%.

At the same time, Moody’s Analytics in a report said inflation has significantly eased from the 8.7% peak in January 2023, giving room for the BSP to begin monetary policy easing as early as June.

“The progress made supports our view that BSP’s tightening cycle has ended… We expect the BSP to hold the (key) rate steady until June, where we should see the first rate cut of 25 basis points,” Moody’s said.

However, the challenge for this year is to ensure inflation stays firmly within the 2-4% target, it said.

“We expect some volatility in the opening months of the year given the risk that the El Niño weather pattern could strengthen and keep food prices elevated,” it said.

Higher transport charges, increased electricity rates, and rising fuel prices are also other risks to the outlook, according to the research firm.

“That should see inflation bump up around the 4% mark before returning firmly to BSP’s target range by mid-2024. We look for the full-year inflation rate to average 3.4%,” it said.

BMI sees risks to interest rate forecasts tilted to the upside, with the BSP likely to tighten if the impact would be larger than anticipated.

“The biggest uncertainty surrounds the severity of El Niño weather conditions. Similar events are often accompanied by periods of higher food prices,” BMI said.

“While we have factored this into our projections, things could still deteriorate further. A strong surge in price pressures could prompt the BSP to resume its tightening cycle,” it added.

BSP Governor Eli M. Remolona, Jr. earlier said rate cuts are not on the table in the coming months, as inflation should be seen firmly within the 2-4% target range.

The Monetary Board is scheduled to meet on Feb. 15, its first monetary review this year, to discuss policy. — Keisha B. Ta-asan

Gov’t hikes T-bill award on strong demand

The government raised the volume of Treasury bills (T-bills) it awarded for a second straight week on Monday at mixed rates as demand continued to climb amid expectations that the Bangko Sentral ng Pilipinas (BSP) will keep borrowing costs higher for longer.

The Bureau of the Treasury (BTr) raised PHP 19 billion via the T-bills it offered on Monday, above the original PHP 15-billion program, as total bids reached PHP 46.875 billion or more than thrice the amount on the auction block.

“The auction was 3.1 times oversubscribed,… prompting the committee to double the accepted volume of non-competitive bids for the 91- and 182-day T-bills,” the BTr said in a statement.

Broken down, the Treasury raised PHP 7 billion from the 91-day T-bills, above the PHP 5-billion program, as tenders for the tenor reached PHP 18.36 billion. The three-month paper was quoted at an average rate of 5.102%, 3.8 basis points (bps) below the 5.14% seen last week. Accepted rates ranged from 4.98% to 5.25%.

The government also raised PHP 7 billion through the 182-day securities, above the planned PHP 5 billion, as bids for the paper reached PHP 16.91 billion. The average rate for the six-month T-bill stood at 5.582%, inching up by 0.4 bp from the 5.578% quoted previously, with accepted yields ranging from 5.29% to 5.7%.

Meanwhile, the BTr borrowed PHP 5 billion as programmed via the 364-day debt papers as bids for the tenor reached PHP 11.605 billion. The average rate of the one-year T-bill went up by 14.4 bps to 5.973% from 5.829% previously. Accepted rates were from 5.83% to 6.025%.

At the secondary market on Monday, the 91-, 182-, and 364-day T-bills were quoted at 5.2265%, 5.5084%, and 5.8274%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

T-bill rates were mixed on Monday as “investors considered prospects that the BSP will keep policy rates unchanged,” a trader said in an e-mail.

The central bank will likely keep benchmark interest rates elevated in the coming months until inflation settles within their 2-4% annual target, BSP Governor Eli M. Remolona, Jr. said last month.

The BSP last month kept its policy rate unchanged at a 16-year high of 6.5% for a second straight meeting.

The central bank raised benchmark interest rates by a cumulative 450 basis points from May 2022 to October 2023 to help bring down elevated inflation.

Headline inflation slowed to 3.9% in December from 4.1% in November and 8.1% in the same month a year ago, the Philippine Statistics Authority reported last week. This marked the first time the consumer price index (CPI) settled within the central bank’s 2-4% target and was the slowest in 22 months or since the 3% reading in February 2022.

However, for 2023, inflation averaged 6%, faster than 5.8% in 2022 and marking the second straight year that the CPI exceeded the BSP’s 2-4% target.

The Monetary Board will hold its first meeting this year on Feb. 15.

Strong US jobs data recently also affected T-bill rates on Monday, the trader added.

The monthly nonfarm payrolls report showed the US economy added 216,000 new jobs in December, Reuters reported.

The jobless rate held steady at 3.7%, down from most forecasters’ expectations for it to rise, prompting concerns that the US Federal Reserve’s long battle to tame inflation may have further to run.

The Federal Open Market Committee will hold its first policy meeting this year on Jan. 30-31.

On Wednesday, the BTr will auction off PHP 30 billion in new five-year Treasury bonds (T-bonds).

The Treasury wants to raise PHP 195 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 120 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year. — A.M.C. Sy with Reuters

Peso down on dovish BSP

The peso depreciated against the dollar on Monday after Finance Secretary Benjamin E. Diokno said the central bank could cut benchmark rates by as much as 100 basis points (bps) this year.

The local unit closed at PHP 55.69 per dollar on Monday, weakening by 12 centavos from its PHP 55.57 finish on Friday, based on Bankers Association of the Philippines data.

The peso opened Monday’s session stronger at PHP 55.50 against the dollar. Its intraday best was at P55.44, while its weakest showing was at P55.708 versus the greenback.

Dollars exchanged went down to $1.54 billion on Monday from $2.05 billion on Friday.

The peso was dragged lower by dovish signals from Mr. Diokno, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Diokno, who sits on the central bank’s policy-setting Monetary Board, said in an interview with Bloomberg Television that the Bangko Sentral ng Pilipinas (BSP) could mirror the US Federal Reserve’s cuts this year.

“Right now, the policy rate is at 6.5% so I see something like 5.5% by the end of 2024. The timing, of course, would be data dependent and probably towards the second semester,” Mr. Diokno said

The BSP raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023, bringing the policy rate to a 16-year high of 6.5%.

The Monetary Board will hold its first policy meeting of the year on Feb. 15.

“The peso weakened amid the stronger-than-expected US employment and nonfarm payrolls reports for December 2023,” a trader added in an e-mail.

For Tuesday, the trader sees the peso moving between PHP 55.55 and PHP 55.80 per dollar, while Mr. Ricafort expects it to range from PHP 55.60 to PHP 55.80 — AMCS

Shares decline on Fed bets after US jobs report

Local shares closed in negative territory on Monday following strong US jobs data, which caused Federal Reserve rate cut expectations to ease, and as investors pocketed profits after the market’s climb earlier in the day.

The benchmark Philippine Stock Exchange index (PSEi) fell by 20.42 points or 0.3% to end at 6,609.22 on Monday, while the broader all shares index decreased by 3.01 points or 0.08% to finish at 3,499.51.

“The market started the week on a cautious tone with persistently thin volume. The negative sentiment was fueled, in part, by a surprising surge in US jobs data, setting off a chain reaction across international markets,” AB Capital Securities, Inc. Vice-President Jovis L. Vistan said in a Viber message.

Value turnover dropped to PHP 4.28 billion on Monday with 412.88 million issues changing hands from the PHP 5.26 billion with 520.19 million shares seen on Friday.

The monthly nonfarm payrolls report showed the US economy added 216,000 new jobs in December, Reuters reported.

The jobless rate held steady at 3.7%, down from most forecasters’ expectations for it to rise, prompting concerns that the Fed’s long battle to tame inflation may have further to run.

“Investors also adopted a prudent approach, opted for a “wait-and-see” strategy in anticipation of the release of the latest US consumer price index figures scheduled for Thursday. It is expected to provide insights into the trajectory of future US interest rate cuts throughout the remainder of the year,” Mr. Vistan said.

“A low inflation figure would reinforce expectations that the Fed will start cutting interest rates,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

The US central bank last month kept the fed funds rate steady at 5.25-5.5% for a third straight meeting after hiking borrowing costs by a cumulative 525 basis points from March 2022 to July 2023.

The Federal Open Market Committee will hold its first policy meeting for the year on Jan. 30-31.

“Philippine shares succumbed to profit taking at the end of session after trading in the green for most of the day,” Mr. Limlingan added.

The majority of sectoral indices declined on Monday. Holding firms dropped by 33.88 points or 0.52% to 6,386.39; financials went down by 8.05 points or 0.45% to 1,766.66; services declined by 7.09 points or 0.43% to 1,641.73; and mining and oil retreated by 40.44 points or 0.41% to 9,736.97.

Meanwhile, industrials rose by 16.14 points or 0.17% to 9,258.45, and property climbed by 5.06 points or 0.17% to 2,879.44.

Advancers edged out decliners, 99 to 93, while 51 names closed unchanged.

Net foreign buying dropped to PHP 160.66 million on Monday from PHP 420.61 million on Friday.

Mr. Vistan put the PSEi’s immediate support at 6,550 and immediate resistance at 6,700. — RMDO with Reuters

PHL seeks to unlock AI’s potential amid emerging threats

By Ashley Erika O. Jose, Reporter

DIGITALIZATION has become a strategy for many businesses as more companies embraced the trend when the pandemic forced them to accelerate their digital transformation.

Amid the shift in the digital and business space, artificial intelligence (AI) has emerged as the latest buzzword.

In the Philippines, many companies have shifted their operations to digital, signaling the country’s preparedness to adopt innovative technologies like machine learning technology.

President Ferdinand R. Marcos, Jr. in November said the country is ready to head towards this technological trend with the crafting of the national AI roadmap that is meant to drive innovation while also upskilling the country’s workforce.

At the same time, the country has been hit with cyberattacks, increasing the potential risks that this technological innovation may be used maliciously amid the growing sophistication among cyberattackers.

According to a report by cybersecurity company Palo Alto Networks, the Philippines has been hit by the highest number of cyberattacks compared with its Southeast Asian peers this year.

Twenty-nine percent of Filipino organizations have reported an increase in cybersecurity-related incidents of 50% or more, with 51% saying that they are at high risk from threats, the report said.

The report has identified cyberattacks affecting businesses in the country including malware (66%), phishing and spear phishing attacks (63%), and password attacks (56%), it added.

Organizations now need to look for more extensive cybersecurity solutions due to the growth in digital transactions, which could expose their corporate network, it said.

Last year, several government agencies experienced cyberattacks. For instance, the Philippine Health Insurance Corp. was hit by Medusa ransomware where more than 600 gigabytes worth of its members’ data were obtained.

Information and Communications Technology Assistant Secretary Renato A. Paraiso said cyberattacks have become more frequent.

“On a daily basis, there are constant attempts to infiltrate and breach various systems, not only government systems but even private sectors,” he told BusinessWorld by phone.

For the Department of Information and Communications Technology (DICT), strengthening cybersecurity and upskilling of personnel are crucial in harnessing the potential of any emerging technologies.

However, technology firm Cisco said organizations in the country are unprepared to leverage the power of AI as its study found that only 17% of businesses in the country are prepared to utilize and deploy AI.

UNCHARTED THREATS
This year, the Philippines may face more cybersecurity attacks, prompting calls for the strengthening of infrastructure enterprises through cybersecurity solutions.

“Cyberattacks are a global phenomenon. It is not isolated within the Philippines. Worse incidents have happened even in established, progressive countries,” Mr. Paraiso said.

Several firms like telecommunications and information communications technology companies have announced the integration or adoption of AI in their operations. Some are integrating AI technology in their contact services operations, cloud platforms, and even financial services platforms.

“There’s a concern that bad actors and adversaries out there might look to utilize those AI tool sets to create new forms of compromise. Absolutely, there is a potential for adversaries and bad actors to find new, creative and innovative ways of using artificial ways and forms to compromise organizations,” Carl Solder, Cisco chief technology officer for Australia and New Zealand, said.

In the Philippines, the majority of the network remains untrusted, which makes them more prone to attacks, Now Corp. Chairman Mel V. Velarde said, adding that geopolitical tensions may also spark more cyberattacks.

“Expect more hacking, expect more breaches because we are at the center of a geopolitical crisis. It is not surprising and not possible to deny that we have problems,” he said in a press chat.

David R. Hardoon, chief executive officer of Aboitiz Data Innovation Pte. Ltd. (ADI), said regardless of whether it’s the Philippines or other countries, “you can assume that cyberattacks are going to increase.”

“With the increase of digitalization, the increase of technology adoption, we have to, unfortunately, but we need to acknowledge that the bad actors are also going to increase the digitization technology,” he said.

AI TO SOLVE AI-DRIVEN THREATS
“In order to protect against [cyberattacks], you also need to start thinking about using AI to fend off those AI-initiated attacks. We all need to use AI to better defend ourselves against the attacks,” Mr. Solder said.

As AI starts to gain momentum and traction, cyberattacks will become more creative to compromise any systems, Mr. Solder said.

“The industry is also looking to utilize these [AI] tool sets to provide better ways and form and to protect against those new forms of initiated attacks,” he said.

To fully unlock the potential of any technology against any threats, the DICT said the focus must be on strengthening networks and education.

“We need to strengthen our cybersecurity posture, constantly upgrade our systems and upscale our personnel to combat these challenges,” Mr. Paraiso said.

For ADI, artificial intelligence and other emerging technology innovations will be a powerful tool in revolutionizing the fight against cyberthreats.

Mr. Hardoon described AI as a mechanism to find patterns as well as irregularities within patterns.

“We should effectively use AI in order to detect [any] irregularities. [It functions as] a kind of verification. We need to use these technologies to making sure defenses and controls of our systems are as high as possible,” Mr. Hardoon said.

To navigate the right formula between challenges and opportunities that AI may bring, the right balance between robust regulatory and ethical framework must be in place, according to advocacy group Digital Pinoys.

“The increasing integration of artificial intelligence has sparked apprehensions regarding its potential misuse, particularly in the context of heightened cyber threats. As AI advances and gains sophistication, concerns grow over the possibility of its exploitation for malicious activities on a grander scale, potentially leading to more extensive cyberattacks,” Ronald B. Gustilo, Digital Pinoys national campaigner, said in a Viber message.

It is important to recognize the transformative impact of AI across diverse domains from healthcare to automation, Mr. Gustilo said.

“The benefits brought by AI, such as improved efficiency and innovative solutions, present opportunities for positive societal impact. To ensure a future where the advantages of AI outweigh potential risks, it becomes imperative to actively address ethical considerations, establish clear regulations, and foster responsible development and deployment practices within the evolving landscape of artificial intelligence,” Mr. Gustilo said.

PH dollar reserves dip in December

The Philippines’ dollar reserves slipped by 0.3% as of end-December, as the National Government paid some of its debt obligations, but still ended the year above the central bank’s $100-billion projection.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the gross international reserves (GIR) fell to USD 102.45 billion as of end-December from USD 102.72 billion in November.

However, the end-December level of dollar reserves rose by 6.6% from USD 96.15 billion as of end-2022.

The GIR was also higher than the BSP’s end-2023 projection of USD 100 billion.

“The month-on-month decrease in the GIR level reflected mainly the National Government’s payments of its foreign currency debt obligations,” the BSP said in a statement late on Friday.

At its end-December level, the GIR is enough to cover 7.7 months’ worth of imports of goods and payments of services and primary income.

It is also equivalent to about six times the country’s short-term external debt based on original maturity and 3.8 times based on residual maturity.

Having an ample level of foreign exchange buffers safeguards an economy from market volatility and is an assurance of the country’s capability for debt repayment in the event of an economic downturn.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a note said that foreign exchange deposits and gold holdings of the BSP went down as of end-December despite the 1.8% month-on-month increase in global gold prices.

Based on BSP data, foreign currency deposits plummeted by 62.5% to USD 716.3 million as of end-December from USD 1.91 billion a month prior, and by 24% from USD 942.8 billion as of end-2022.

The country’s gold reserves were valued at USD 10.56 billion as of end-2023, lower by 2.4% than USD 10.82 billion a month earlier but up by 13.8% from USD 9.28 billion as of end-2022.

Mr. Ricafort said this was offset by an increase in foreign investments due to “the hefty gains in the US/global financial markets in November-December 2023.”

The BSP’s reserves in the form of foreign investments rose by 1.4% to USD 86.63 billion as of December from USD 85.42 billion as of November. This was also 6.2% higher than USD 81.37 billion seen a year ago.

According to the BSP, net international reserves inched up by 0.5% to USD 102.4 billion as of end-December from USD 101.9 billion a year ago.

Net international reserves are the difference between the BSP’s reserve assets (GIR) and reserve liabilities such as short-term foreign debt, and credit and loans from the International Monetary Fund (IMF).

The Philippines’ reserve position in the IMF dipped by 2% month on month to USD 771.4 million and by 2.3% from $789.8 million from a year ago.

Special drawing rights held by the Philippines — or the amount the country can tap from the IMF — stood at USD 3.78 billion in December, falling by 0.3% month on month but 0.5% higher than USD 3.76 billion in the previous year.

Mr. Ricafort also noted that the proceeds of the National Government’s Islamic bonds have already been added in the country’s dollar reserves as of December.

In December, the Treasury department said it has raised USD 1 billion from the sale of 5.5-year Sukuk bonds. The issued bonds were met with high demand as bids reached nearly five times the offer.

For the coming months, proceeds from investment banking activities abroad and dollar bond issuances by the National Government may continue to support the country’s GIR, Mr. Ricafort said

However, this could be offset by government plans to reduce foreign borrowings and better manage foreign exchange risks, he added.

The BSP is expecting to have USD 102 billion in dollar reserves by end-2024. — Keisha B. Ta-asan

Inflation likely to remain within BSP’s 2-4% target range for most of 2024

Headline inflation is seen to remain mostly within the 2-4% target range this year, which may prompt the Bangko Sentral ng Pilipinas (BSP) to begin policy easing, according to analysts.

Makoto Tsuchiya, an economist from Oxford Economics, said inflation will likely settle within the BSP’s target range in the coming months due to base effects.

“Inflation will then edge up again during the second quarter also due to base effects, but overall, we think the annual inflation will remain within the target in 2024,” he said in an e-mail interview.

Preliminary data released by the Philippine Statistics Authority (PSA) on Friday showed headline inflation slowed to 3.9% in December from 4.1% in November and 8.1% a year ago.

This is the first time inflation hit the 2-4% target in nearly two years. December’s inflation print was also the slowest reading in 22 months or since 3% in February 2022.

However, full-year inflation stood at a 14-year high of 6% in 2023. This was above the 5.8% in 2022, marking the second straight year that average inflation breached the BSP’s 2-4% target band.

According to Mr. Tsuchiya, the slowdown in December inflation was due to lower food and energy prices.

“Among food items, rice prices edged up given continued supply-side issues, but this was more than offset by lower vegetable prices, which declined on the year. Energy prices further led the disinflation, likely due to lower global fuel prices,” he said.

Based on PSA data, the index for food and non-alcoholic beverages slowed to 5.4% in December from 5.7% in the previous month. Food inflation alone went down to 5.5% in December from 5.8% in November and 10.6% a year ago.

However, rice inflation accelerated to 19.6% in December from 15.8% in November. This was the highest print since the 22.9% recorded in March 2009.

The slower December inflation print can also be attributed to the slower growth in prices of housing, water, electricity, gas and other fuels index.

“Our long-held position that headline inflation would return to the BSP’s 2-to-4% target range by the end of 2023 — despite the surprise headline resurgence in August and September — has officially been vindicated,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said in a note.

He said core inflation, which eased to 4.4% in December from 4.7% in November and 6.9% in December 2022, will likely continue to slow as well in the coming months.

“Overall, we continue to believe that annual average inflation will drop sharply to 2.8% this year, comfortably below the BSP’s 4.2% projection, opening the door for the 100-basis-point (bp) in policy rate cuts we expect to see,” he said.

Upside risks
However, upside risks to the inflation outlook remain, Mr. Tsuchiya said.

“Weather disturbance will continue, while geopolitical uncertainty could swing commodity prices up and down. We observe other inflationary pressures such as transport fare hikes and minimum wage hikes, but we don’t think they will materially change the picture,” he said.

The El Niño weather phenomenon is seen to enter a stronger phase in January, persisting until May, which would likely lead to weaker agricultural output and food price increases in the country.

In September 2023, the Land Transportation and Regulatory Board raised the minimum fare to PHP 13 for traditional jeepneys and PHP 15 for modern jeepneys. Wage hikes were also implemented in some regions last year.

“More important is the inflation expectation, but here too we know the BSP is highly cautious, so we believe any unwanted inflationary development will be tamed quickly,” Mr. Tsuchiya added.

Meanwhile, the Metrobank Research and Business Analytics Department said it sees average inflation to hit 4.3% this year, slower than the 6% full-year average in 2023, but still above the 2-4% target.

“Our above-target baseline forecast for 2024 remains largely driven by the risk of upward pressure on rice prices, given that exporting countries, particularly, Thailand and Vietnam, have cited that dry spells and flash floods last year have led to a forecasted fall in crops through to 2024,” it said.

Metrobank Research also sees headline inflation to pick up to above 2-4% from second quarter onwards.

Still, dissolving price pressures amid easing core inflation will likely prompt the BSP to consider cutting borrowing costs as early as June, the bank said.

“We think that policy rates may not need to be as restrictive as current levels throughout the year, especially if core inflation continues to move lower,” Metrobank Research added.

The BSP has kept its key interest rate steady at a 16-year high of 6.5% since October, after tightening borrowing costs by 450 basis points from May 2022 to tame inflation.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board is not considering any policy rate cuts in the coming months, as inflation should be seen firmly within the 2-4% target range.

The BSP will have its first policy review this year on Feb. 15. — By Keisha B. Ta-asan, Reporter

BoI eyes up to PHP1.50 trillion investments in 2024

The Board of Investments (BoI) is aiming to approve as much as PHP 1.5 trillion in investment pledges this year.

Trade Secretary Alfredo E. Pascual said the BoI’s official target is to approve PHP 1.1 trillion in investment commitments this year.

“But our internal target, of course, is to exceed what we have achieved in 2023,” he said at a media briefing on Friday.

Trade Undersecretary and BoI Managing Head Ceferino S. Rodolfo said the agency’s internal target is to greenlight between PHP 1.3 trillion and PHP 1.5 trillion in investment pledges this year.

For 2023, the BoI approved PHP 1.26 trillion in investment pledges, a 73% increase from the PHP 729 billion worth of commitments approved in 2022.

However, this fell short of the BoI’s PHP 1.5-trillion internal target, which was revised upward from the initial PHP 1-trillion goal.

Under the Program Expenditure Classification, the BoI is aiming to increase its investment approvals by 10% this year.

According to Mr. Rodolfo, the investment promotion agency would have been able to hit the PHP 1.5-trillion mark if the projects worth PHP 272 billion were approved during the Dec. 28 meeting.

“These are several projects which still have documentary requirements and transparency requirements,” he said.

Mr. Pascual expressed confidence the BoI will be able to surpass its 2023 investment approvals.

“You will see, the year is just starting but the BoI has around PHP 300-billion investment eyed to be approved this year. So hopefully, we will be able to achieve and exceed what we were able to achieve in 2023,” the Trade chief said.

The BoI approved investment commitments for 311 projects mainly in renewable energy, telecommunication infrastructure, and the export of copper, gold, and other metals.

“Upon full operations, the projects are expected to produce 49,030 jobs for Filipinos,” the BoI said in a press release.

By sector, the renewable energy (RE) and power sector had the biggest investment commitments accounting for PHP 987.12 billion or a 141% increase from PHP 409.02 billion in 2022.

Investor interest in RE projects surged after the Philippine government allowed full foreign ownership in the sector starting November 2022.

Foreign nationals and foreign-owned entities are now allowed to explore, develop and use RE resources in the country such as solar, wind, biomass, ocean or tidal energy. Foreign ownership of RE projects was previously limited to 40%.

Other sectors that attracted investments include information and communication (PHP 96.04 billion), mining (PHP 79.19 billion), manufacturing (PHP 22.05 billion), and infrastructure (PHP 21.47 billion).

“An important aspect of the BoI approvals is that a bigger proportion of the approvals are actually foreign investments rather than local investments. Two-thirds are foreign investments, which is used to just comprise 20%,” Mr. Pascual said.

“This is indicative of how the Philippines is becoming attractive for foreign investors,” he added.

Foreign investment approvals accounted for PHP 766.97 billion of the total approvals or 61%, while local investments made up PHP 493.23 billion or 39%.

Germany was the top source of foreign investments last year accounting for PHP 393.28 billion, which mainly went into wind energy projects.

The other top sources are the Netherlands (PHP 333.61 billion), Singapore (PHP 21.45 billion), United States (PHP 3.55 billion), and the British Virgin Islands (PHP 2.13 billion).

Mr. Rodolfo said he expects the RE sector to continue attracting foreign investments.

“Yes, it will be RE, but in addition to RE, we will now be seeing investments in RE equipment manufacturing. Second, mineral processing, which we expect to come out from the previous presidential visits,” he said.

He said that a lot of foreign investments, mainly in RE, are expected to come from Europe. The BoI is also expecting more investments to come from South Korea, US, China and Japan. — Justine Irish D. Tabile

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