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The Philippines’ continued inclusion in the Financial Action Task Force’s (FATF) “gray list” of jurisdictions under increased monitoring for “dirty money” risks may affect remittance fees, borrowing costs and investments, an official from the Philippine Amusement and Gaming Corp. (PAGCOR) said.

Overseas Filipino workers (OFWs) will be the first to be affected by the country’s continued inclusion in the gray list, Dave Fermin J. Sevilla, assistant vice-president of PAGCOR’s Anti-Money Laundering Supervision and Enforcement Department, said in an interview with One News PH on Wednesday.

“As long as we are in the gray list, banks and other institutions will tighten their (anti-money laundering controls) for Filipinos. Sanctions and transaction fees for OFWs may increase,” he said in mixed English and Filipino. 

“Even in the casino industry, our customers coming from abroad may be reduced because we are still in the gray list,” he added.

The FATF is also an intergovernmental organization that crafts and promotes policies and standards to help combat financial crime.

It said in a report released on Saturday that the Philippines remains part of its gray list of jurisdictions under increased monitoring for dirty money risks after failing to address strategic deficiencies against money laundering, terrorist financing and proliferation financing.

After a three-day plenary session in Singapore, the dirty money watchdog said the Philippines still needs to address five out of the 18 deficiencies in anti-money laundering/combating the financing of terrorism (AML/CFT) controls.

The Philippines should continue to demonstrate effective risk-based supervision of designated nonfinancial business and professions (DNFBPs) and ensure that supervisors are using the proper AML/CFT controls to mitigate risks associated with casino junkets, the FATF said.

It should also enhance and streamline law enforcement agencies’ access to beneficial ownership information and ensure accurate and up-to-date information and increase investigation and prosecution of cases related to money laundering and proliferation financing.

The Philippines has been on the FATF’s gray list since June 2021.

Government officials earlier said they hope the Philippines can exit the gray list by January 2024.

According to Mr. Sevilla, banks are required to do strict customer due diligence on clients from high-risk jurisdictions as identified by the FATF, or those included in its gray and black lists.

“Unfortunately, Filipinos are subjected to that. Banks need to check and monitor our transactions, which leads to higher fees because more resources are being used,” he said. “And as long as we continue in the gray list, the charges for remittances may continue to increase and our OFWs would have a harder time.”

Companies in the Philippines that want to secure foreign loans could also face higher interest rates and charges, Mr. Sevilla said.

The country’s attractiveness as an investment destination will likewise take a hit if it remains on the FATF’s gray list, he added.

“Why would you invest in a country that is gray-listed? The FATF and the APG (Asia-Pacific Group) encourages investors to put their money in safe countries, or countries that has good AML/CTF systems,” he said.

The APG on Money Laundering is an intergovernmental organization with 42 member jurisdictions. It aims to ensure that individual members effectively implement the international standards against money laundering, terrorist financing and proliferation financing. 

For PAGCOR, the FATF and the APG want the Philippines to demonstrate effective and intensive monitoring of covered entities for money laundering risks, he said.

“We are now intensifying the monitoring of all our gaming licenses… We always check our big casinos and we have always had people stationed there. Then we also check the smaller stations. For POGOs (Philippine Offshore Gaming Operators) or internet gaming licenses, we have new rules that require more intensive monitoring of the weaknesses identified by the AMLC,” Mr. Sevilla said.

“We have also identified areas in the sector that can be used for money laundering, and we try to mitigate these weaknesses with new rules and regulations,” he added.

President Ferdinand R. Marcos, Jr. has given government agencies until Nov. 30 to address deficiencies in their anti-money laundering strategies in hopes that the Philippines could exit the FATF’s gray list by January. — K.B. Ta-asan

Head inflation may ease to 5.3% in October, which would put less pressure for the Bangko Sentral ng Pilipinas (BSP) to further tighten monetary policy, according to Pantheon Macroeconomics.   

However, Bank of the Philippine Islands (BPI) said another rate hike cannot be ruled out at the Monetary Board’s Nov. 16 meeting if the October print was faster than expected and the peso further depreciates against the US dollar.

In a note dated Oct. 30, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Senior Asia Economist Moorthy Krshnan said Philippine inflation may still return to the 2-4% target band by the end of the year.

“Indeed, we expect inflation for October to fall to 5.3%, from September’s four-month high of 6.1%, as the reversal of the August surge in rice prices finally filters through; it should have in the last report,” the UK-based think tank said.

With easing October inflation, Pantheon Macroeconomics sees no rate action from the BSP at its last two meetings for this year.

“We are maintaining our end-2024 rate forecast of 5.5% too, implying a more pronounced unwinding of one of the region’s most aggressive rate-hiking cycles, which could start as early as February, if our relatively benign outlook for inflation and downbeat view on growth prove accurate,” it said.   

The BSP last week hiked its key policy interest rate by 25 basis points (bps) to a fresh 16-year high of 6.5% in an off-cycle move. This has brought the cumulative rate hikes to 450 bps since May 2022.   

Meanwhile, BPI Lead Economist Emilio S. Neri, Jr. said another rate increase is still possible on Nov. 16 since it would be based on the upcoming inflation data as well as the peso-dollar exchange rate.

“An inflation print significantly higher than 6.1% might trigger another rate hike in that meeting. Aside from this, the central bank may also consider a rate hike if the exchange rate breaches the P57 level and moves closer to P58,” he said.

The Philippine central bank is scheduled to release its October inflation forecast today (Tuesday) while the local statistics agency will release the inflation data on Nov. 7.   

Inflation quickened for a second straight month to 6.1% in September. It also marked the 18^th consecutive month inflation was above the BSP’s 2-4% target range. This brought the nine-month average inflation to 6.6%.

DBS Bank Senior Economist Radhika Rao said the off-cycle rate hike was a preemptive move ahead of the release of October inflation, “which is expected to show another jump on the back of high food and fuel prices.”   

“The door remains open for a follow-up hike this quarter if conditions warrant. We pencil in another increase this quarter, followed by a prolonged pause into the first half of 2024,” she said in a note.   

BSP Governor Eli M. Remolona, Jr. on Friday said there is a “good chance” the BSP will not hike at its meeting on Nov. 16, as he expects October inflation to ease.

The central bank currently sees full-year inflation at 5.8% for 2023, before declining to 3.5% in 2024 and 3.4% in 2025. But officials said the BSP will be revising its inflation forecasts on Nov. 16.    

BPI’s Mr. Neri said market players should not downplay the effectiveness of a rate hike in taming inflation.   

“Monetary policy continues to have a role in managing inflation even if the cause is mostly on the supply side. Inflation driven by supply may eventually lead to second-round effects, which the BSP aims to counter with its rate hikes,” he said.   

The BSP’s credibility as an inflation-targeting central bank is another reason why a rate hike was necessary, despite high consumer prices being mostly driven by supply-side issues.   

“The rate hike is a statement from the BSP that it is determined to bring inflation back to its target. Inflation expectations may shoot up further if the market doesn’t see any action from the BSP. It might hurt the BSP’s credibility and make it more difficult to bring down inflation,” Mr. Neri said.   

He noted the peso may continue to depreciate against the US dollar even after the rate increase, as market players consider substantial imports, global financial market developments, and the central banks’ future policy moves.

He noted that remittances during the holiday season may offset some of the pressure, but the movements of the local currency for the rest of 2023 would largely depend on what the US Federal Reserve does.   

“Once the Fed is done hiking, the peso may strengthen as markets will likely assess the possibility of rate cuts. If a recession in the US happens, the Fed may cut its rates and the BSP will likely follow,” he said.

The US Federal Reserve kept its own policy rates at 5.25-5.5% last month — its highest level in 22 years. From March 2022 to July 2023, the Fed has raised a total of 525 bps.   

The local unit closed at P56.955 per dollar on Friday, gaining half a centavo from its P56.96 finish on Thursday, based on Bankers Association of the Philippines data.   

“But in this situation, the appreciation of the local currency will likely be smaller compared to other currencies given the still substantial current account deficit of the Philippines this year and in 2024,” Mr. Neri added.   

In the second quarter, the current account deficit reached $3.6 billion, equivalent to -3.4% of gross domestic product (GDP). This brought the current account deficit at $8.2 billion (-4% of GDP) in the first semester.   

The BSP projects the current account deficit to reach $11.1 billion this year (-2.5% of GDP). — Keisha B. Ta-asan, Reporter

The Bangko Sentral ng Pilipinas (BSP) on Thursday delivered an off-cycle 25-basis-point (bp) rate hike, as it warned inflation will remain above the 2-4% target range until the middle of 2024.

The Monetary Board raised its target repurchase rate to 6.5%, the highest in 16 years, or since the 7.5% seen in May 2007. Rates on the overnight deposit and lending facilities were also raised by 25 bps to 6% (from 5.75%) and 7% (from 6.75%), respectively. 

The BSP’s first policy move in seven months brought the cumulative rate increases since May 2022 to 450 bps.

“The Monetary Board recognized the need for this urgent monetary action to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations,” BSP Governor Eli M. Remolona, Jr. said at a press briefing on Thursday afternoon.   

The BSP’s off-cycle rate hike came ahead of its regular policy meeting scheduled on Nov. 16.

Mr. Remolona said further tightening may be considered at the next Monetary Board meeting.

“We will consider it if things are worse than we thought. We are hoping the data are nicer to us. But if not, then we will have to consider a further rate hike,” he said.

‘Tighter for longer’
Mr. Remolona said the decision to resume monetary tightening was based on the BSP’s latest baseline projections that “point to an elevated inflation path over the policy horizon as upside risks continue to manifest.”

He said that the staff risk-adjusted forecast for 2024 rose to 4.7% from 4.3% previously, well above the 2-4% target range.

“Looking ahead, the Monetary Board deems it necessary to keep monetary policy settings tighter for longer until inflationary expectations are better anchored and a sustained downward trend in inflation becomes evident,” Mr. Remolona said. 

Mr. Remolona, who took office in July, admitted the Monetary Board was a “little behind” in monetary tightening, and should have hiked policy rates at its September meeting.

“We did not look closely enough at expectations,” he said, particularly the BSP’s household expectations survey. “About 92% of consumers think that in the next 12 months inflation will be above 4%. It is similar for expectations by firms.”

Headline inflation rose for a second straight month to 6.1% in September from 5.3% in August. It marked the 18^th straight month that inflation exceeded the central bank’s 2-4% target. Year to date, inflation averaged 6.6%.

Mr. Remolona said risks to the inflation outlook remain on the upside, as higher transport costs, electricity rates, oil prices, and wage adjustments may contribute to faster inflation.

On the other hand, weaker-than-expected global recovery and government measures to mitigate the impact of the El Niño weather event could temper inflationary pressures.

The BSP governor also noted that inflation is unlikely to return to the 2-4% target range this year. 

“In fact, I think from March to July next year, the headline inflation will be very likely above 4%. That’s what our model says,” he said, adding that inflation will start slowing down by July.

In assessing future policy moves, Mr. Remolona said the BSP will look at October inflation and the third-quarter gross domestic product (GDP) data.

He expects GDP growth to settle around 4.5% in the third quarter, slightly faster than the 4.3% growth in the second quarter.

Mr. Remolona reiterated that the aggressive tightening has not affected the Philippines’ growth prospects, but pent-up demand is waning.

“The country’s medium-term growth prospects remain largely intact. The Monetary Board is closely monitoring the impact of the increase in interest rates as these work their way through the economy,” he said.

Earlier, National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan has repeatedly cautioned against further rate hikes, saying that it will have a long-term impact on the economy.

Analysts were not surprised by the Monetary Board’s move, which was telegraphed by Mr. Remolona earlier this week.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the market had been expecting further tightening by the BSP.

“We therefore expect at least one more rate hike from the BSP before the end of the year,” he said.

However, inflation will likely stay elevated until supply-side interventions are implemented.

“Against this backdrop of higher rates and inflation, economic growth appears to be slowing and we believe the full impact of previous BSP tightening will be felt by early 2024,” Mr. Mapa said.

ING Bank sees GDP at 4.7% this year and 4.5% in 2024, while inflation may average 6% in 2023 and 4% next year.

Capital Economics Emerging Asia Economist Shivaan Tandon said the 25-bp off-cycle move will provide support to the peso.

The local currency closed at P56.96 versus the dollar on Thursday, weakening by 11 centavos from P56.85 previously.

“As such this hike may end up being a one-off but that will depend on two things. The first is what happens to the exchange rate. Another rise in US yields and more pressure on the currency could prompt another hike. The second is the release of the upcoming inflation and Q3 GDP numbers,” he said. 

However, he said the BSP may refrain from further tightening as economic growth, which likely remained weak in the third quarter.

“Tight fiscal policy, the current high level of rice and fuel prices, and a likely weakening of global demand will continue to drag on activity in the near term,” Mr. Tandon said. 

“As a result, we think policy makers will tread with caution, unless signs emerge of a further step-up in inflation pressure. The currency will remain a focus of concern, but the central bank has other options to manage it in a sizable stock of foreign-currency reserves,” he added.

Meanwhile, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the rate hike was “unnecessary” as inflation shocks have “reversed and are stabilizing.”

He noted that there is no evidence of second-round effects amid the ongoing slowdown in core inflation, which eased to 5.9% in September from 6.1% in August.

“We’re sticking to our view that the Board will hold at its scheduled rate meetings in November and December, a call that will only be bolstered if we’re right about a likely disappointing third-quarter GDP print and about the Fed holding fire for the rest of the year,” Mr. Chanco said.

He also sees the Philippines’ key rate at 5.5% by end of 2024, which implies a cut worth 100 bps from the Monetary Board, “which could start as early as the February meeting.”

After the Nov. 16 meeting, the BSP will next meet on Dec. 14 to discuss policy. — By Keisha B. Ta-asan, Reporter

First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) expect the Philippine economy to grow by 5.8% this year, amid an improvement in macroeconomic indicators.

In its latest Market Call released on Thursday, the FMIC and UA&P said they raised the Philippine gross domestic product (GDP) forecast to 5.8% for this year from 5.5% previously.

However, this is still slightly below the government’s 6-7% target for the year.

FMIC and UA&P said they expect third-quarter GDP growth to average 5%, still within its earlier forecast of 5-5.2%.

Third-quarter GDP data will be released on Nov. 9.

“We see the cup half full rather than half empty as economic data show resilience of the economy. With the recovery of employment in August and likely until November, the manufacturing subsector has displayed elan together with accelerating output,” they said.

The unemployment rate fell to 4.4% in August, the lowest in three months.

FMIC and UA&P expect Philippine economic growth to be driven by government spending, which should “remain at a high trajectory and provide the main booster as consumers worry about inflation.”

The government has been ramping up spending in recent months after GDP expanded by a weaker-than-expected 4.3% in the April-to-June period.

A 7.1% contraction in government spending in the second quarter was partially blamed for the GDP outturn.

To address low budget utilization, government agencies have been ordered to create catch-up plans for spending. State spending rose by 4.12% to PHP 3.82 trillion as of end-September.

“Beneath ‘apparently weak’ spending growth in August, National Government (NG) spending on current operations and capital outlays soared by 24.7% following through the 28.9% vault in July. NG will continue to ramp up spending for the rest of the year,” they said.

FMIC and UA&P said they expect annual inflation to slow “significantly” in October amid easing Thai rice prices. It also noted that elevated crude oil prices would weaken global growth and demand.

Headline inflation soared to 6.1% in September, its fastest print in five months. It also marked the 18th straight month that inflation breached the central bank’s 2-4% target.

FMIC and UA&P said inflation will likely slow to below 5% by November, which would boost GDP growth in the fourth quarter.

While inflation is on a downtrend, FMIC and UA&P said it will “no longer go below 4% this year.”

“We think (inflation) will ease closer but above 4% by November, as international crude oil and rice prices appear toppish, even as the fourth quarter should benefit from (high) base effect,” it said.

For the full year, FMIC and UA&P see inflation averaging 6.1%, above the central bank’s revised 5.8% full-year forecast.

Inflation averaged 6.6% in the first nine months, higher than 5.1% a year ago

“While a certain pessimism has begun to grip fairly large swaths of people, including policy makers and investors, especially amid the boiling geopolitical — i.e., Hamas- Israel, Russia-Ukraine conflicts, and China’s aggressiveness in the East Asia and Southeast Asian region, we do not share such a cloudy view of the economy,” FMIC and UA&P said. — Luisa Maria Jacinta C. Jocson