Archives: Business World Article

Stocks dropped further on Monday following strong US jobs data, which could support expectations that interest rates will remain steady in the world’s largest economy, a stance that could be mirrored by the Philippine central bank.

The benchmark Philippine Stock Exchange index (PSEi) dropped by 6.48 points or 0.1% to end at 6,228.29 on Monday, while the broader all shares index declined by 1.93 points or 0.05% to finish at 3,327.65. 

“The market is down on strong US employment numbers, pointing to an extended Fed hawkish pause, reinforcing the Bangko Sentral ng Pilipinas’ (BSP) steady hold on the key rate and vigilant stance on the local currency,” First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message.

A US Labor department report showed nonfarm payrolls increased by 199,000 jobs in November, compared with an estimated increase of 180,000, Reuters reported.

The unemployment rate slipped to 3.7%, while average earnings edged up to 0.4% on a monthly basis, compared with forecasts of 0.3% growth.

Interest rate futures show traders widely expect the Federal Reserve to hold interest rates steady at its meeting on Dec. 12-13, according to the CME FedWatch tool.

“The local bourse dropped… as investors digested the statement of the BSP Governor Eli M. Remolona, Jr. that it is premature to discuss policy easing in 2024, prompting negative sentiment due to potential adverse impacts on the economy with prolonged elevated interest rates,” Philstocks Financial, Inc. Research Analyst Claire T. Alviar said in a Viber message.

Mr. Remolona last week said it is premature to discuss policy easing in 2024, with the Monetary Board still prepared to hike borrowing costs if needed to make sure inflation returns to the 2-4% target range.

The Monetary Board will hold its last policy meeting for this year on Thursday, a day after the Fed’s review.

A BusinessWorld poll last week showed 15 out of 17 analysts expect the Monetary Board to keep its target reverse repurchase rate steady this week, with the central bank remaining vigilant amid lingering upside risks to prices despite easing inflation recently.

Most sectoral indices declined on Monday. Financials went down by 33.26 points or 1.95% to 1,672.47; mining and oil dropped by 96.56 points or 1% to 9,543.94; industrials retreated by 24.21 points or 0.27% to 8,738.49; and services decreased by 3.66 points or 0.23% to 1,537.70. 

Meanwhile, holding firms rose by 44.57 points or 0.75% to 5,956.61 and property climbed by 18.06 points or 0.65% to 2,762.44.

Value turnover went up to PHP 4.06 billion on Monday with 392.39 million issues changing hands from the PHP 3.67 billion with 270.24 million issues traded on Thursday.

Decliners outnumbered advancers, 118 to 64, while 48 names ended unchanged. 

Net foreign selling dropped to PHP 32.81 million on Monday from PHP 410.52 million on Thursday.

The market was closed on Friday for a non-working holiday. — RMDO with Reuters

THE NATIONAL GOVERNMENT’S gross borrowings jumped by 23.4% in October as domestic debt surged, the Bureau of the Treasury (BTr) said.

Data from the BTr showed that gross borrowings rose to PHP 225.202 billion in October from PHP 182.429 billion in the same month a year ago.

Gross domestic debt more than tripled to PHP 174.632 billion in October from PHP 56.733 billion a year ago. This accounted for more than three-fourths or 77.5% of total borrowings during the month.

Broken down, domestic debt consisted of PHP 90 billion in fixed-rate Treasury bonds, PHP 71.78 billion in retail onshore dollar bonds, and PHP 12.852 billion in Treasury bills.

Meanwhile, gross external borrowings declined by 59.8% to PHP 50.57 billion in October from PHP 125.696 billion a year ago.

This was composed of PHP 42.514 billion in program loans and PHP 8.056 billion in new project loans.

For the 10-month period, gross borrowings stood at PHP 1.975 trillion, 1.5% lower than PHP 2.006 trillion in the same period a year earlier.

Domestic borrowings slipped by 0.99% to PHP 1.519 trillion during the January-to-October period, from PHP 1.535 trillion a year ago. This accounted for 76.9% of total borrowings for the period.

Fixed-rate Treasury bonds made up the bulk or PHP 1.055 trillion of local debt, followed by retail Treasury bonds (PHP 252.091 billion), Treasury bills (PHP 139.697 billion), and the retail onshore dollar bonds (PHP 71.78 billion).

Meanwhile, external debt in the 10 months to October dropped by 3.3% to PHP 456.311 billion from PHP 471.655 billion.

This consisted of PHP 187.573 billion in program loans, PHP 163.607 billion in global bonds, and PHP 105.131 billion in new project loans.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that higher borrowings in October were due to the government’s sale of retail dollar bonds.

The government raised $1.26 billion from the first retail dollar bond offering under the Marcos administration. This was higher than the minimum issue size of $200 million but below the $1.6 billion raised at the maiden retail dollar bond auction in 2021.

The dollar-denominated five-and-a-half-year bonds fetched a coupon rate of 5.75% and were awarded at rates ranging from 5% to 5.75%, bringing the average to 5.509%.

Mr. Ricafort also said that elevated interest rates also drove borrowing costs higher.

The Bangko Sentral ng Pilipinas (BSP) delivered a 25-basis-point (bp) off-cycle rate hike in October, bringing the benchmark rate to a 16-year high of 6.5%. It kept rates steady at its latest policy meeting in November.

Since May 2022, the central bank has raised borrowing costs by a cumulative 450 bps.

“Going forward, lower global crude oil and other commodity prices that help ease inflation towards the target of the central bank would eventually support a pause or even cuts in policy rates, especially in 2024, and thereby help reduce new government borrowings and debt servicing bill,” Mr. Ricafort said.

“Tax and fiscal reform measures would structurally improve tax revenue collections and could lead to more disciplined government spending, thereby helping narrow budget deficits and the borrowings needed to finance the budget deficit,” he added.

In the January-to-October period, the budget deficit narrowed by 8.45% to PHP 1.018 trillion from a year ago. This was equivalent to 67.88% of the full-year PHP 1.499-trillion deficit program.

This year, the National Government set its borrowing program at PHP 2.207 trillion, consisting of PHP 1.654 trillion from domestic sources and PHP 553.5 billion from foreign creditors. — Luisa Maria Jacinta C. Jocson

YIELDS on government securities (GS) mostly went down last week after headline inflation slowed further in November.

GS yields, which move opposite to prices, went down by an average of 3 basis points (bps) week on week, based on the PHP Bloomberg Valuation (BVAL) Service reference Rates as of Dec. 7 published on the Philippine Dealing System’s website.

Yields on the 91-day and 182-day Treasury bills (T-bills) dropped by 21.39 bps (to 5.1506%) and 37.61 bps (5.2568%), respectively. Meanwhile, the 364-day T-bill saw its rate rise by 29.83 bps week on week to 6.0749%.

Rates at the belly of the curve were likewise mixed, Yields on the two- and three-year Treasury bonds (T-bonds) rose by 5.7 bps (to 6.0471%) and 2.12 bps (6.0861%), respectively, while the rates of the four-, five-, and seven-year bonds fell by 0.36 bp (6.1057%), 1.54 bps (6.1154%), and 3.72 bps (6.1340%).

At the long end of the curve, the 10- and 20- year debt papers went down by 5.61 bps and 0.48 bp to yield 6.173% and 6.3082%, respectively. Meanwhile, the rate of the 25-year bond inched up by 0.05 bp to 6.3103%.

Total GS volume reached P8.67 billion on Thursday, lower than P9.3 billion on Dec. 1, BVAL data showed.

The slower November inflation print pushed yields on most benchmark tenors down last week, Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said in a Viber message.

“GS yields declined as the lower-than-expected Philippine inflation solidified prospects of further easing in domestic prices,” a bond trader likewise said in an e-mail.

Headline inflation eased to its slowest pace in 20 months in November amid easing prices of food as well as restaurant and accommodation services, the Philippine Statistics Authority (PSA) reported last week.

Preliminary data from the PSA showed headline inflation climbed 4.1% annually in November, slower than 4.9% in October and 8% in November 2022.

This was the slowest rate in 20 months or since the 4% seen in March 2022.

It was also slower than the median estimate of 4.4% in a BusinessWorld poll of 15 analysts conducted last week, and at the lower end of the 4-4.8% forecast range of the Bangko Sentral ng Pilipinas (BSP). 

For the first 11 months, headline inflation averaged 6.2%, faster than 5.6% in the same period a year ago. This was still above the BSP’s baseline forecast of 6% and 2-4% target for 2023.

For this week, GS yields may move sideways to lower, depending on the results of the policy meetings of the US Federal Reserve and the BSP, Mr. Ravelas said.

The slower November inflation print has supported views that the BSP could keep its rates steady at its meeting this week, the bond trader said.

“For this week, bond yields might continue to head south as major central banks, including the BSP, are expected to maintain their policy rates on hold,” the trader added.

The BSP’s policy-setting Monetary Board will hold its last meeting for the year on Thursday.

A BusinessWorld poll last week showed 15 out of 17 analysts expect the BSP to keep its target reverse repurchase rate steady this week amid lingering upside risks to prices despite easing inflation recently.

The BSP last month kept its policy rate at a 16-year high of 6.5%. It has raised benchmark interest rates by a cumulative 450 bps since May 2022 to help tame inflation.

Meanwhile, the Federal Open Market Committee will meet on Dec. 12-13 to review policy. Markets expect the US central bank to keep rates steady for a third straight time this week.

The Fed kept its target rate steady at the 5.25%-5.5% range for a second straight time during its Oct. 31-Nov. 1 meeting.

The US central bank has hiked rates by a cumulative 525 bps since it kicked off its tightening cycle in March 2022. — AMCS

THE BANGKO SENTRAL ng Pilipinas (BSP) is widely expected to keep its key policy rate at a 16-year high on Thursday despite easing inflation as it remains vigilant against risks.

A BusinessWorld poll last week showed 15 out of 17 analysts expect the Monetary Board to hold the target reverse repurchase (RRP) rate steady at 6.5% on Dec. 14 — the BSP’s last policy review for the year.

A pause on Thursday would be the second straight meeting the BSP left rates unchanged since its 25-basis-point (bp) off-cycle hike on Oct. 26.

On the other hand, one economist said the BSP may raise policy rates to further anchor inflation expectations, while another expects the Monetary Board to start easing due to the sharp slowdown in November inflation.   

“We believe that the BSP will keep the target RRP rate unchanged at 6.5% mainly because of the slower inflation rate in November,” Philippine National Bank economist Alvin Joseph A. Arogo said in an e-mail.

Headline inflation eased to 4.1% in November from 4.9% in October and 8% in November 2022. This was the slowest inflation rate in 20 months or since the 4% seen in March last year.   

For the January-to-November period, the consumer price index averaged 6.2%, faster than 5.6% in the same period a year ago. This is still above the BSP’s full-year baseline forecast of 6%.

“We expect BSP to remain on hold at the next meeting on the back of receding pressures on inflation expectations,” Makoto Tsuchiya, an economist from Oxford Economics, said in an e-mail.

He noted the 4.1% inflation in November was a welcome development as it was at the low end of the BSP’s 4-4.8% forecast for the month.

“Recent strength of the peso, which we think will partly unwind, also gives BSP a reason to pause given the implication for lower imported inflation,” Mr. Tsuchiya said. 

The local unit closed at PHP 55.30 per dollar on Thursday, inching up by less than a centavo from its PHP 55.305 finish previously. This was the peso’s strongest close in over four months or since its PHP 55.19-per-dollar finish on Aug. 2.   

“At the same time, the resilient domestic economy performance allows BSP to retain a hawkish stance by staying put,” Mr. Tsuchiya said.

The Philippine economy expanded by 5.9% in July to September, faster than 4.3% in the second quarter but slower than 7.7% a year earlier. For the first nine months, economic growth averaged 5.5%.   

Mr. Arogo said that the general downtrend in gross capital formation, or the investment component of the economy, show that interest rates are “restrictive enough.”   

Gross capital formation slipped by 1.6% in the third quarter, ending nine straight quarters of growth. This was a reversal of the 18.2% expansion a year ago and 0.3% in the second quarter.

Meanwhile, Nalin Chutchotitham, an economist for the Philippines from Citigroup, Inc., said the BSP may hike rates by 25 bps at Thursday’s meeting.

“We still see risks of a 25-bp rate hike, to 6.75%, should the BSP continue to place significant emphasis on anchoring expectations,” she said.   

She noted that the BSP remained cautious even as November inflation slowed and emphasized that the balance of risks is still on the upside.   

Earlier, the BSP cited higher transport fares, electricity rates, and international oil prices, as well as higher-than-expected minimum wage adjustments as key upside risks to inflation.   

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said supply-side measures and base effects brought inflation down by 2 percentage points in 60 days, which shows that supply-side remedies are more effective in addressing inflation rather than rate hikes. 

“With inflation down sharply, we believe inflation expectations have been re-anchored, with low contemporaneous inflation prints likely more impactful on expectations than anything else,” he said.   

“With these data and developments, BSP will likely retain policy rates at 6.5% as it appears there is little impetus to tighten further. This could help the BSP re-establish some credibility as a data driven central bank,” Mr. Mapa added.   

Meanwhile, Security Bank Corp. Chief Economist Robert Dan J. Roces said core and headline inflation may pick up in December due to the likely surge in demand as consumers spend more during the holidays.

“Thus, December inflation may slightly be higher on seasonality than November’s, to bring average inflation in 2023 to 6%,” he said in a note.   

RATE CUT IN 2024?

China Banking Corp. Chief Economist Domini S. Velasquez said the BSP may continue to adopt a hawkish stance due to upside risks, even as the impact of supply shocks in August and September have dissipated.   

“In the first half of 2024, upward pressure on food prices (particularly rice) caused by El Niño, possible fuel price increases due to (global) production cuts, and higher-than-expected minimum wage hikes are expected,” she said.   

Still, inflation is projected to settle at an average of 3.7% next year, which could provide room for the BSP to cut its reserve ratio requirement (RRR) or interest rates in the second half.

BSP Governor Eli M. Remolona, Jr. last week said it is premature to discuss policy easing in 2024 until inflation stays comfortably within the 2-4% target range.

He also said there will be no cut in banks’ RRR while the BSP remains hawkish.     

The RRR for big banks is currently at 9.5%, while the ratio for digital banks is at 6%. The BSP also set the RRR for thrift banks, and rural and cooperative banks to 2% and 1%, respectively.

For Mr. Tsuchiya, the BSP may cut rates in the second quarter of 2024.

“There would be less pressure on both currency and inflation, while growth momentum will stay subdued given soft global economic growth and the impact of past monetary tightening on private domestic demand,” he said.   

Ms. Chutchotitham said the BSP may start policy easing in the third quarter next year, with a gradual cut of 25 bps in each meeting up to the rest of 2024.

“We expect end-2024 interest rate to remain elevated to 5.5% to help ensure inflation would remain within target,” she said.   

Meanwhile, Mr. Arogo said in the absence of severe weather disruptions, inflation could fall below 4% within three months. 

“Nevertheless, we continue to anticipate that price growth would only settle sustainably within the BSP’s 2-4% target range starting fourth quarter of 2024. As such, the BSP should only cut rates in the fourth quarter 2024 (total of 50 bps, in our view),” he said.   

Full-year inflation may hit 6% this year, according to the BSP. For next year, the BSP sees inflation averaging 3.7% before easing to 3.2% in 2025. — Keisha B. Ta-asan, Reporter