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The Bangko Sentral ng Pilipinas (BSP) is open to increasing its key policy rate by 25 basis points (bps) at its meeting on Nov. 16, its governor said on Wednesday, after inflation accelerated for a second straight month in September.

BSP Governor Eli M. Remolona, Jr. told reporters higher borrowing costs have not affected Philippine economic growth, which may indicate there is still room for monetary tightening.

“I would not rule out a 25-basis-point rate hike,” he said.

The BSP has kept the benchmark interest rate at a near 16-year high of 6.25% at its last four meetings. It hiked borrowing costs by 425 bps from May 2022 to March 2023 to tame red-hot inflation.

Mr. Remolona said he is “not sure” if headline inflation would return to the 2-4% target within the year due to the “significant spike” in September.

“The core number went down a little bit, so that’s encouraging. For us, the core number is what reflects monetary policy. But the headline number could affect expectations and then we have to worry,” he said.

Headline inflation accelerated to 6.1% in September from 5.3% in August. This marked the 18^th straight month that inflation exceeded the central bank’s 2-4% target.

In September, core inflation eased to 5.9% from 6.1% in August, but still faster than 5% a year earlier.

Year to date, inflation has averaged 6.6%, higher than 5.1% a year ago and still above the BSP’s revised 5.8% forecast for 2023. Year to date, core inflation has averaged 7.2%.

“The upside risk that we feared, some of them have materialized already. One thing we were worried about is transport fare hikes and that has happened. I wouldn’t say that we’re done with the tightening,” Mr. Remolona said.

The Land Transportation Franchising and Regulatory Board has approved a PHP 1 provisional jeepney fare increase nationwide, which took effect on Oct. 8. The minimum fares for traditional and modern jeepneys are now PHP 13 and PHP 15, respectively.

“So far, we think it hasn’t really affected our growth prospects. We’re watching that very, very carefully,” Mr. Remolona said.

“We try not to affect growth prospects, what we try to do is relieve pressure from the demand side that is leading to inflation without affecting the growth prospects,” he added.

The Philippine economy grew by 4.3% in the second quarter, its slowest expansion in more than two years, mainly due to weaker consumption and a drop in government spending.

For the first half, GDP growth averaged 5.3%. The economy has to expand by 6.6% in the second half to meet the government’s 6-7% target.

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

Meanwhile, Security Bank Corp. Chief Economist Robert Dan J. Roces in a Viber message said it is unlikely that inflation would return to the BSP’s 2-4% target range by the end of the year.

Security Bank has raised its inflation forecast this year to 6.1% from 5.6%.

“This sets the risk for the BSP to potentially hike interest rates, possibly before the next scheduled meeting on Nov. 16. A rate hike could aim to dampen inflation but might also slow down economic activity, but we do not think an off-cycle hike will take place,” he said.

Mr. Roces noted that “critical decision points” for the central bank at its next meeting will be the foreign exchange scenario, the US Federal Reserve’s next policy meeting, October inflation data, and third-quarter GDP data.

“As such we retain our 6.25% policy rate outlook for end-of-year 2023 yet recognizing the upside risks,” he added.

Risk to stability
Meanwhile, Mr. Remolona said the Philippine banking system is “in very good shape.”

“When you look at the usual regulatory measures, capital, liquidity, these things are well above (regulatory requirements). Even so, that doesn’t ensure that there is no systemic risk,” he said.

The BSP chief noted some major corporations have elevated debt levels, which may pose a risk to the country’s financial stability.

“There’s some risk that some of them may not be able to pay off their loans. But so far, it’s very manageable. It’s something that we’re watching,” he said.

“We’re also making sure that should there be a need by the banks for emergency liquidity, we will be in a position to provide the emergency liquidity. Although we don’t see any need at the moment for [it],” he said.

The Philippines is in discussion with foreign central banks that are part of the Executive Meeting of East Asia Pacific when it comes to financial stability, the BSP chief said. — Keisha B. Ta-asan

The government is keeping a close eye on potential spillovers from the Israel-Hamas conflict and its impact on the Philippine economy, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said on Wednesday.

In a press chat with reporters, Mr. Remolona said the conflict has not “really affected” oil prices yet.

“The effects on oil prices have been minimal, but it may have spillover effects on global growth, for example, so that’s what we’re monitoring,” he said in mixed English and Filipino.

“In the past, something like this would have caused oil prices to spike, but so far it has not. The peso hasn’t really depreciated so far because of this. So, so far, so good. But of course, we’re watching. We’re watching developments. It’s a global phenomenon, by the way, so it’s not specific to us,” he added.

Oil edged higher on Wednesday as investors grappled with the prospect of supply disruptions due to the Middle East turmoil, Reuters reported.

Brent crude rose by 25 cents or 0.3% to USD 87.90 a barrel by 5:50 a.m. GMT. US West Texas Intermediate (WTI) crude rose by 24 cents or 0.3% to USD 86.21 a barrel.

Brent and WTI surged by more than USD 3.50 on Monday as the military clashes raised fears that the conflict could spread beyond Gaza but settled lower in Tuesday’s session.

Israel produces very little crude oil, but markets are worried that the conflict could escalate and disrupt Middle East supply, worsening an expected deficit for the rest of the year.

Monetary Board (MB) member Bruce J. Tolentino said “any intensification” of tensions in the Middle East could result in higher crude prices.

“As global crude prices move up, so will the prices of refined (petroleum) products in the Philippines. So, this is a crucial upside risk to monitor in the near term,” he said in a text message.

Another spike in global oil prices may stoke inflation, which the BSP is expecting to return to the 2-4% target in the fourth quarter.

Headline inflation accelerated for a second straight month in September amid higher food and transport costs. Inflation quickened to 6.1% in September, bringing the nine-month average to 6.6%. The BSP last month raised its full-year forecast to 5.8% from 5.6%.

GlobalSource Partners Country Analyst and former BSP Deputy Governor Diwa C. Guinigundo said signals so far indicate that the Israel-Hamas conflict might last longer than initially expected.

“Given the extent of the damage and death in Israel and with the firm declaration of war by (Prime Minister Benjamin Netanyahu), there is some basis to say the hostilities might be prolonged,” he said in a text message.

Mr. Guinigundo said that oil prices could surge if other oil-producing nations are drawn into the conflict.

“If (Saudi Arabia) and OPEC+ oil cutbacks are maintained, this could further exacerbate the instability in oil prices and the world economy,” he said.

“Supply chains might be affected and that could have a more extensive impact. Of course, it’s difficult to quantify all these assertions,” he added.

Top oil exporter Saudi Arabia said on Tuesday it is working with regional and international partners to prevent the escalation of the situation in Gaza and neighboring areas, and reaffirmed it supports efforts to stabilize oil markets.

“In the actual geopolitical context, crude oil could further rise toward the USD 90-USD 100 per barrel range but a rise beyond the $100 level is unlikely with the morose global economic outlook,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note. — Luisa Maria Jacinta C. Jocson with Reuters and Keisha B. Ta-asan

 The Philippines’ trade-in-goods deficit for August narrowed to its lowest level in two months, as an increase in exports offset the continued decline in imports.

Preliminary data from the Philippine Statistics Authority (PSA) showed the trade-in-goods balance — the difference between exports and imports — stood at a USD 4.13-billion deficit in August, narrower than the USD 4.2-billion gap in the previous month and the USD 6.03-billion deficit in August last year.

This was the narrowest trade gap in two months or since the USD 3.94-billion deficit in June.

For the first eight months, the trade deficit slimmed down to USD 36.31 billion from the USD 41.86-billion gap during the same period a year ago.

Total sales of outbound goods jumped by 4.2% year on year to USD 6.7 billion in August, a turnaround from the revised 1.7% contraction in the same month in 2022. The 4.2% export growth was the fastest in nine months or since 13.1% in November 2022.

By value, export receipts in August marked the highest level in two months or since USD 6.703 billion in June.

In the eight months to August, exports fell by 6.6% to USD 47.81 billion.

Meanwhile, the country’s merchandise imports contracted by 13.1% year on year to USD 10.83 billion in August, a reversal from the 26.4% growth in August 2022.

The import bill in August was at the highest level in three months or since USD 10.92 billion in May this year.

In the January-to-August period, imports dropped by 9.6% to USD 84.12 billion.

“The main drivers of August exports were manufacturing goods including electronics as well as minerals. We estimate they also improved sequentially, signaling some improvement in external demand for the Philippines’ goods,” Makoto Tsuchiya, assistant economist at Oxford Economics, said in an e-mail.

Mr. Tsuchiya noted the decline in imports is still broad-based, reflecting the softness in domestic demand.

“The seasonally adjusted trend shows imports are declining but less intensely compared to the year-on-year growth, which means the imports might be close to bottoming out soon at least in the sequential term,” he added.

Manufactured goods, which accounted for 81.8% of total August exports, rose by 3.6% to USD 5.48 billion.

Electronic products, which made up more than half of the total exports in August, jumped by 6.1% to USD 3.88 billion.

Almost half of total exports came from semiconductors, which jumped by 14% to USD 3.12 billion.

The United States remained as the main destination of local goods in August, with export value reaching USD 1.1 billion or a 16.4% share of the total export receipts. Exports to Japan were valued at USD 918 million, followed by Hong Kong with USD 871 million and China with USD 838 million.

Meanwhile, imports of raw materials and intermediate goods, which made up 35.6% of the total imports in August, declined by 18.9% to USD 3.86 billion.

Imports of capital goods, likewise, contracted by 19.3% to USD 2.73 billion in August.

On the other hand, mineral fuels, lubricants and related materials, increased by 18.2% to USD 1.97 billion, while consumer goods grew by 20.6% to USD 2.24 billion.

China was the main source of imported goods in August with a 22.4% share or USD 2.43 billion of the total bill. Imports from Indonesia reached USD 977 million, followed by Japan with USD 787 million, South Korea with USD 777 million and United States with $752 million.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa expects the conflict between Israel and Palestinian Islamist group Hamas to send global energy prices soaring, which would drive up the country’s import bill.

“Global growth could also slow, which would slow demand for Philippine exports, either directly or indirectly,” he said in an e-mail.

Despite the exports growth, Mr. Mapa said he does not expect a sustained pickup in exports in the coming months.

“Exports will be hard pressed to hit the -4% target for this year given that year-to-date (YTD) exports are down by more than 6%,” he said.

“Meanwhile, imports will also not likely hit the forecast of -3% this year given the YTD drop of 9.6% for inbound shipments and our expectations that imports will remain soft on contracting demand for capital goods and raw materials given fast fading capital formation due to elevated borrowing costs.”

Mr. Mapa was referring to the Bangko Sentral ng Pilipinas’ forecasts for exports and imports.

Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis, Jr. said improvements in the supply chain helped drive export growth in August.

“[Export] orders increased slightly because of the improved supply chain… [the growth of orders] is continuous, not on a big level but it will improve,” he said in a phone interview.

The Development Budget Coordination Committee is projecting a 1% growth for exports and 2% for imports this year. — Mariedel Irish U. Catilogo

Net inflows of foreign direct investments (FDI) rose to its highest level in three months in July, amid improved investor sentiment.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Tuesday showed FDI net inflows jumped by 35.7% to USD 753 million in July from USD 555 million in the same month a year earlier. It also rose by 55.6% from the USD 484-million inflows seen in June.

The July FDI inflows were the highest in three months or since USD 877 million in April.

“The jump in FDI inflows was likely due to positive risk sentiment which encouraged investments in emerging markets like the Philippines,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

Ms. Velasquez said market players had expected the US Federal Reserve to be nearing the end of its tightening cycle in July due to weaker US inflation and US jobs data.

The US Federal Reserve hiked its own policy rates by 25 basis points (bps) to 5.25-5.5% at its July 25-26 meeting. It has raised borrowing costs by a total of 525 bps since March 2022.

“Additionally, the launch of green lanes for strategic investments and the signing of the Maharlika Investment Fund could have also encouraged inflows,” she said.

President Ferdinand R. Marcos, Jr. signed Executive Order No. 18 in February, which aims to expedite, streamline, and automate government processes for strategic investments to attract more foreign investors.

In July, Mr. Marcos signed into law Republic Act No. 11954, which created the Philippines’ first sovereign wealth fund. The MIF is expected to be operational by yearend.

The BSP attributed the increase in FDI net inflows in July to nonresidents’ net investments in debt instruments more than doubling to USD 575 million from USD 276 million a year earlier.

However, equity and investment fund shares fell by 36.1% to USD 179 million in July from USD 279 million in the same month last year.

In July, reinvestment of earnings slid by 20.1% to USD 114 million from USD 142 million a year ago.

Equity inflows other than reinvestment of earnings dropped by 52.6% year on year to USD 65 million. This, as placements plummeted by 47.6% to USD 81 million, while withdrawals went down by 9.1% to USD 16 million.

For the first seven months of 2023, FDI inflows decreased by 14.7% to USD 4.66 billion from USD 5.47 billion in the same period last year.

Broken down, investments in debt instruments dropped by 15.2% to USD 3.28 billion in the January-to-July period.

Equity and investment fund shares went down by 13.6% to USD 1.38 billion as of July. Reinvestment of earnings declined by 13.1% to USD 573 million in the seven-month period.

Investments in equity capital other than reinvestment of earnings slipped by 14% to USD 808 million. Placements dipped by 4% to USD 1.004 billion, while withdrawals surged by 83% to USD 196 million.

“In the near term, the prevailing risk-off sentiment may dissuade investments in the Philippines. On a positive note, enacted legislations and reforms should help improve investor sentiment in the country,” Ms. Velasquez said. 

She cited recent laws such as the Retail Trade Liberalization Act, the Public Service Act, and the Regional Comprehensive Economic Partnership.

“We expect FDI inflows to be better in 2024 in line with a global economic recovery,” she added.

Last month, the BSP lowered its full-year projection for FDI net inflows to USD 8 billion from USD 9 billion previously. FDI net inflows are also projected to reach USD 10.5 billion in 2024. — Keisha B. Ta-asan

The International Monetary Fund (IMF) expects the Philippine economy to remain one of the strongest performers in the region this year, despite its outlook of slower global economic growth

In its latest World Economic Outlook (WEO), the IMF expects the Philippines’ gross domestic product (GDP) to grow by 5.3% this year, below the 6-7% target of the government. This is also slower than the 7.6% GDP expansion in 2022.

The multilateral lender’s 2023 growth outlook for the Philippines is the second fastest among emerging and developing Asia, just behind India (6.3%).

It is ahead of China and Indonesia (both at 5%), Vietnam (4.7%), Malaysia (4%), and Thailand (2.7%).

Emerging and developing Asia’s growth is expected to average 5.2% this year from 5.3% previously. The region’s growth is seen to slow to 4.8% in 2024 from 5% previously.

The IMF said that growth prospects for emerging markets and developing economies will remain weak this year.

“Global activity bottomed out at the end of last year while inflation — both headline and underlying (core) — is gradually being brought under control,” the IMF said.

“But a full recovery toward pre-pandemic trends appears increasingly out of reach, especially in emerging markets and developing economies,” it added.

The IMF’s 5.3% forecast for the Philippines this year also makes it the fastest among five Association of Southeast Asian Nations (ASEAN) member countries.

The ASEAN-5 region is projected to grow by 4.2% this year and 4.5% next year.

Based on the WEO, the IMF projects 5.9% GDP growth for the Philippines in 2024, although this was already revised to 6% last week after the conclusion of the Article IV consultation mission to Manila.

This would still make the Philippines the second-fastest growing economy in emerging and developing Asia, after India (6.3%). The Philippines is also seen to be the fastest in ASEAN-5 next year, followed by Indonesia (5%) and Malaysia (4.3%).

IMF Representative to the Philippines Ragnar Gudmundsson said the multilateral lender’s latest projections for the Philippines were finalized during the Article IV mission, as the forecasts in the WEO update were done before the consultations.

“Our views on monetary policy are still in line with those shared last week,” he said in an e-mail. “Essentially, we made small adjustments to our projections based on our discussions and the latest data we received in the context of the mission.”

IMF Mission Chief to the Philippines Shanaka Jayanath Peiris earlier said the main downside risk to the IMF’s growth outlook for the Philippines is persistent inflation, which could prompt the central bank to resume monetary tightening.

The IMF expects Philippine inflation to rise to about 6% this year before declining to 3.5% in 2024. The BSP sees inflation averaging 5.8% this year and 3.5% in 2024.

The BSP has kept the key interest rate at a near 16-year high of 6.25% since March.

Mr. Peiris had said that a “higher-for-longer” policy rate path may be necessary until inflation falls within the target range. 

The IMF projects Philippine inflation to return to the 2-4% target by the first quarter of next year.

Meanwhile, the IMF expects global growth to slow to 3% this year, as the global economy continues to recover “slowly” from the pandemic, Russia’s invasion of Ukraine and the cost-of-living crisis. It also trimmed its 2024 outlook to 2.9%, from 3% previously.

“Yet growth remains slow and uneven, with growing global divergences. The global economy is limping along, not sprinting,” the IMF said.

The IMF expects global inflation to rise to 6.9% this year, but ease to 5.8% in 2024. Inflation is not expected to return to target until 2025 in most economies around the world. — Keisha B. Ta-asan

The total assets of the Philippine banking industry continued to rise year on year at end-August amid a sustained growth in loans and deposits.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed banks’ assets grew by 8.6% to PHP 23.46 trillion as of August from PHP 21.59 trillion in the same period a year ago.

Banks’ assets are mainly supported by deposits, loans, and investments. These include cash and due from banks as well as interbank loans receivable (IBL) and reverse repurchase (RRP), net of allowances for credit losses.

“The latest asset growth of banks is largely consistent with the growth in loans,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

However, lending growth has slowed amid higher interest rates, which made borrowing more expensive, he said.

The banking industry’s total loan portfolio inclusive of IBL and RRP increased by 9.5% to PHP 12.51 trillion as of end-August from PHP 11.42 trillion in the comparable year-ago period, BSP data showed.

Net investments, or financial assets and equity investments in subsidiaries, went up by 11% to PHP 6.95 trillion from PHP 6.26 trillion a year ago. 

Cash and due from banks declined by 7.2% to PHP 2.55 trillion in the first eight months of 2023 from PHP 2.75 trillion in the same period in 2022.

Net real and other properties acquired (ROPA) went up by 6.07% to PHP 106.88 billion from PHP 100.76 billion last year.

Other assets stood at PHP 1.35 trillion, 27% higher than the PHP 1.06 trillion last year.

Meanwhile, the banking system’s total liabilities increased by 8.3% to PHP 20.52 trillion as of end-August from PHP 18.93 trillion in the comparable year-ago period.

“Asset growth is also partly supported by the continued increase in banks’ earnings that are added to banks’ capitalization and more funds available for lending and other investments,” Mr. Ricafort said.

“Some banks also got new capital infusion from investors, thereby having more funds for lending and other investments, leading to the continued growth in loans and total assets,” he added.

By banking group, universal and commercial banks held P22 trillion of the industry’s total assets as of end-August, while the thrift banks had PHP HP 987.55 billion.

Total assets of rural and cooperative banks stood at P385 billion as of end-June.

BDO Unibank, Inc. had the largest assets among Philippine banks with PHP 3.98 trillion in the first semester. It was followed by Land Bank of the Philippines with PHP 3.03 trillion, and Bank of the Philippine Islands with PHP 2.66 trillion.

Others in the top 10 banks in terms of asset size were Metropolitan Bank and Trust Co., China Banking Corp., Rizal Commercial Banking Corp., Philippine National Bank, Union Bank of the Philippines, Development Bank of the Philippines, and Security Bank Corp. 

The Monetary Board has kept the target RRP rate at 6.25% after it raised borrowing costs by 425 basis points from May 2022 to March 2023.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board may resume monetary tightening at its next meeting on Nov. 16 if inflation pressures persist. — K.B. Ta-asan