PSEi snaps winning run amid US recession fears

Philippine stocks snapped their six-day winning streak on Tuesday, joining the decline in global markets, amid recession fears in the United States.

The Philippine Stock Exchange Index (PSEi) dropped by 2.42% or 154.22 points to close at 6,206.55 on Tuesday, while the broader all shares index fell by 1.71% or 64.33 points to 3,684.59.

“The local bourse broke its six-day rally, weighed by negative spillovers from Wall Street. This comes amid recession fears in the US driven by their tariff policies,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

“Philippine shares were sold down, fueled by investor worries that uncertainty surrounding tariff policies could lead the global economy into a recession. Concerns about the US have been escalating over the past month and was amplified by recent comments from the White House,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

Emerging market (EM) stocks remained under pressure on Tuesday, as concerns over a US economic slowdown which could lead to a recession weighed on equities, Reuters reported.

MSCI’s index for EM stocks was down 0.4% by 0832 GMT, with South Korean shares closing more than 1% lower, though a higher close in China and Hong Kong helped offset some losses.

Wall Street sold off sharply overnight, with the S&P 500 closing down 8.6% from its Feb. 19 record high, shedding over $4 trillion in market value since then and nearing a 10% decline that would represent a correction for the index.

US President Donald J. Trump’s tariff plans have stoked market volatility after the president late last week suspended the 25% tariffs on Canadian and Mexican goods which had come into effect on March 4. He had initially announced tariffs earlier this year and then postponed them by a month to early March.

Over the weekend, Mr. Trump declined to predict whether the US could face a recession, spurring a selloff in risk assets worldwide.

All sectoral indices closed in the red on Tuesday. Property sank by 4.45% or 102.72 points to 2,203.89; services retreated by 3.33% or 70.03 points to 2,031.68; industrials dropped by 2.13% or 189.30 points to 8,692.13; holding firms decreased by 1.77% or 94.02 points to 5,198.99; mining and oil went down by 1.75% or 156.03 points to 8,739.41; and financials declined by 0.78% or 18.63 points to 2,360.10.

“Only three index members closed with gains this Tuesday, led by Bank of the Philippine Islands, climbing 0.68% to PHP 132.80,” Mr. Tantiangco said.

Value turnover rose to PHP 7.71 billion on Tuesday with 753.65 million shares traded from the PHP 6.41 billion with 627.42 million issues exchanged on Monday.

Decliners overwhelmed advancers, 157 versus 58, while 41 names closed unchanged.

Net foreign selling stood at PHP 350.28 million on Tuesday versus the PHP 1.41 billion in net buying seen on Monday. — R.M.D. Ochave with Reuters

2024 FDI net inflows inch up as Dec. tally hits 11-year low

Net inflows of foreign direct investments (FDI) into the Philippines inched up by just 0.1% in 2024 but plunged in December to its lowest monthly tally in 11 years, amid uncertainty in global trade, data from the central bank showed.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed FDI net inflows edged higher to USD 8.93 billion in 2024 from USD 8.925 billion in 2023, ending two straight years of declining inflows.

The 2024 FDI tally was also the highest in two years but below the BSP’s forecast of USD 9 billion.

Investments in equity and investment fund shares rose by 13.1% to USD 2.7 billion in 2024 from USD 2.39 billion in 2023.

Net foreign investments in equity capital climbed by 42.4% to USD 1.54 billion last year from USD 1.08 billion in 2023.

Placements increased by 4.3% to USD 2.17 billion, while withdrawals fell by 37.1% to USD 628 million.

BSP data showed these placements mainly came from Japan (38%), the United Kingdom (35%), the United States (10%), and Singapore (8%).

Investments were mostly channeled into manufacturing (68%), followed by real estate (12%), and information and communication (5%) industries.

Meanwhile, net investments in debt instruments stood at USD 6.23 billion, down by 4.7% from USD 6.53 billion in 2023.

Reinvestment of earnings likewise declined by 11.2% to USD 1.17 billion from USD 1.31 billion.

December slump

In December alone, FDI net inflows plunged by 85.2% to USD 110 million from USD 743 million in the same month in 2023.

Month on month, inflows likewise fell by 88% from USD 922 million.

December saw the lowest FDI net inflow in 11 years or since the USD 102.16 million recorded in December 2013.

“While nonresidents’ net equity capital investments rose, FDI declined due to increased debt repayments by resident corporations to their nonresident direct investors,” the BSP said.

The higher debt repayments brought net investments in debt instruments to an outflow of USD 19 million in December, a reversal of the USD 618-million inflow in the same month in 2023.

Reinvestment of earnings declined by 14.7% year on year to USD 80 million in December from USD 94 million a year ago.

On the other hand, net investments in equity capital other than the reinvestment of earnings jumped by 58% to USD 49 million in December from USD 31 million in the previous year.

This as equity capital placements dropped by 19.4% to USD 185 million, while withdrawals slid by 31.5% to USD 136 million.

By source, the bulk of equity capital placements in December came from Singapore (42%), followed by Japan (23%), and the United States (16%).

These were invested mainly in information and communication (40%), manufacturing (20%), financial and insurance (13%), construction (9%), and real estate industries (8%).

Meanwhile, investments in equity and investment fund shares went up by 3.3% to USD 129 million in December from USD 125 million.

“The sharp decline in net FDI inflows in December is concerning, as it suggests both short-term financial pressures on local firms and potential shifts in investor sentiment toward the economy,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said.

He said the higher debt repayments suggest resident firms are “prioritizing deleveraging over reinvesting capital, which may reflect tighter financial conditions or concerns over profit margins.”

“Policy uncertainty and global economic risks may have dampened investor sentiment, leading firms to delay or scale down expansion plans in the Philippines,” Mr. Rivera added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the slump in investment flows could be due to uncertainties from the protectionist policies by US President Donald J. Trump.

This may have “encouraged more investments and jobs in the US rather than outside the US that could reduce FDIs globally,” he added.

Prior to assuming office in January, Mr. Trump had announced his plans to impose tariffs on major trading partners, such as China, Canada and Mexico, as well as an across-the-board reciprocal tariff on all countries that tax US imports.

Mr. Ricafort also cited tensions between China and the Philippines as well as weather disturbances that could have disrupted investment activity.

“The drop in FDI could also reflect competitiveness challenges, such as high operating costs, infrastructure bottlenecks, and concerns about regulatory stability,” Mr. Rivera added.

For the coming months, Mr. Ricafort said investment flows could be supported by the implementation of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act.

“This could make foreign investors become more decisive in locating in the country amid enhanced incentives for foreign investors,” he added.

Further interest rate cuts by the US Federal Reserve and BSP could also lower financing costs and attract more FDIs in the country, Mr. Ricafort said.

Despite the surprise policy pause in February, the BSP has said it is still in easing mode.

BSP Governor Eli M. Remolona, Jr. has said there is a possibility of up to 50 basis points of rate cuts this year. The central bank kept the key rate steady at 5.75% last month, citing global trade uncertainties.

“Higher global interest rates make borrowing more expensive, discouraging new investments,” Mr. Rivera said.

Mr. Rivera noted that countries like Vietnam and Indonesia may have attracted more FDI “due to stronger incentives or more favorable business environments.”

“Investors may be waiting for clarity on key economic reforms, tax policies, and regulatory frameworks before committing capital,” he added.

On the other hand, Mr. Ricafort said the tariff war would continue to weigh on FDI inflows in the coming months.

“(These) all encourage foreign investors to locate in the US to avert higher import tariffs and create more jobs in the US as part of Trump’s America-first policy,” he added.

The central bank expects to end 2025 with a USD 10-billion net FDI inflow.

The BSP noted that its FDI data are distinct from the investment data of other government sources as it covers actual investment flows.

“In contrast, the approved foreign investments data published by the Philippine Statistics Authority are sourced from Investment Promotion Agencies. These represent investment commitments, which may not necessarily be fully realized in a given period.” – Luisa Maria Jacinta C. Jocson, Reporter

Thrift banks to request lower liquidity ratio

Thrift banks will ask the Bangko Sentral ng Pilipinas (BSP) to lower the minimum liquidity ratio (MLR) for the industry to 16%, as the reserve requirement ratio (RRR) cut takes effect later this month.

“I’m sure they will be open to that. Especially now that we have a 0% [RRR] already. So, let’s see. We will continue to probably request from them (the BSP),” Chamber of Thrift Banks (CTB) President and CARD SME Bank Vice-Chairperson Mary Jane A. Perreras told reporters on the sidelines of the CTB General Membership Meeting on Friday.

Last year the BSP rejected the thrift banking industry’s call to reduce the MLR, saying there was no need. It noted the 20% MLR was “appropriate,” as it ensures that thrift banks “have adequate liquid assets to withstand potential stress events while continuing to meet their clients’ funding needs.”

“During the pandemic it was at 16%. Now they have brought it back to 20%. So hopefully they can bring it back even if little by little,” Ms. Perreras said.

In April 2020, the BSP lowered the MLR for stand-alone thrift banks, rural banks and cooperative banks to 16% from 20% to help these lenders meet clients’ demand for funds during the pandemic.

This regulatory relief measure expired at the end of 2022, bringing the MLR back to 20%.

Ms. Perreras said the BSP could reconsider its earlier stance due to the expected increase in loan volume after the RRR cut takes effect.

The RRR for thrift lenders will be reduced by 100 basis points to 0%, effective March 28. The RRR is the portion of reserves that banks must hold onto to ensure they can meet liabilities in case of sudden withdrawals. When a bank is required to hold a lower reserve ratio, it has more funds to lend to borrowers.

“That (RRR cut) will increase the volume of loans, hopefully. Because there will be more liquidity that will be in the market. And we’re still also hoping that after the RRR is reduced to zero, the MLR could be reduced next,” she said.

Ms. Perreras said a reduction in MLR would further boost lending.

“We’re hoping that maybe that would be next. Because that is much better for us, especially for banks to be able to lend more… I’m sure they have reasons why they are keeping it at 20%. But we hope that they would also reconsider our request,” she said.

Thrift loans

Meanwhile, Ms. Perreras said loans disbursed by thrift banks could hit around P900 billion this year, driven by the RRR cut and increased lending to small businesses and the agriculture sector.

“I think this growth will continue this year. Especially that now, we have a zero-reserve requirement (ratio). So, that loan portfolio, we expect that to be growing because we have more liquidity to do more loans outside,” she said.

In 2024, thrift banks disbursed loans worth P770 billion, Ms. Perreras said in a speech on Friday. This was around 15% higher than the P667.63-billion loans in 2023.

She told reporters that the sector’s net income and assets could grow by 6-7% this year.

However, cybersecurity issues continue to pose a risk for the sector.

“I think most of the banks are experiencing this, but because of the numerous solutions providers that are going to be very helpful for all the banks, not only the big banks but the big and the small banks, I think we will try to really fight this off,” Ms. Perreras said.

The thrift banking industry’s total assets grew by 6% to P1.1 trillion in 2024 from P1.04 trillion in 2023.

“Total capital reached P174 billion up by 10.7% from P157 billion. Capital adequacy ratio (CAR) is a strong 17.88%, very much above the 10% minimum required CAR. Nonperforming loan ratio remained manageable at 6.66%,” Ms. Perreras added.

This year, the CTB is looking at increasing loans for small businesses, as well as agricultural firms, which are typically affected by natural calamities.

“We have a lot of disasters and usually the affected sector is agriculture. So, while we are still working on development and making this a bigger sector. We will also look at the other sectors like the small and medium enterprises,” she said. — Aaron Michael C. Sy

Gov’t upsizes T-bill award amid robust demand

The government hiked the volume of Treasury bills (T-bills) it awarded on Monday as rates were below secondary market levels on growing expectations that the Bangko Sentral ng Pilipinas (BSP) will resume its easing cycle next month following slower-than-expected February inflation.

The Bureau of the Treasury (BTr) raised PHP 30.8 billion from the T-bills it auctioned off on Monday, higher than the PHP 22-billion plan, as total bids reached PHP 90.598 billion, more than four times as much as the amount on offer and higher than the PHP 85.474 billion in tenders recorded on Feb. 24.

The strong demand prompted the government to double the accepted noncompetitive bids for the 91- and 182-day securities to P5.6 billion and to P6.4 billion for the 364-day T-bill, the Treasury said in a statement.

Broken down, the Treasury borrowed PHP 9.8 billion via the 91-day T-bills, higher than the PHP 7-billion plan, as tenders for the tenor reached PHP 35.628 billion. The three-month paper was quoted at an average rate of 5.178%, declining by 10.5 basis points (bps) from the 5.283% seen at the previous auction, with the BTr only accepting bids with this yield.

The government also made a PHP 9.8-billion award of the 182-day securities, above the programmed PHP 7 billion, as bids stood at PHP 30.05 billion. The average rate of the six-month T-bill was at 5.48%, 13 bps lower than the 5.61% fetched last week, with accepted rates ranging from 5.49% to 5.568%.

Lastly, the Treasury raised PHP 11.2 billion via the 364-day debt papers, more than the PHP 8 billion placed on the auction block, as demand for the tenor totaled PHP 24.92 billion. The average rate of the one-year debt inched up by 0.3 bp to 5.773% from 5.77% previously, with bids accepted carrying yields of 5.755% to 5.779%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.2702%, 5.5681%, and 5.7941%, respectively, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

The government upsized its T-bill award on Monday as average rates were all lower than prevailing secondary market yields amid robust demand, the Treasury said.

“The latest Treasury bill average auction yields again slightly corrected lower for the second straight week after slightly rising for three straight weeks after the latest inflation unexpectedly eased to 2.1%, a pleasant surprise near the lower end of the BSP’s inflation target of 2-4%,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This could support a 25-bp cut in borrowing costs as early as next month, he said.

“Demand was strong due to renewed interest in positioning given the recent decline in inflation. Looking forward, there are chances of another rate cut in April,” a trader said in a phone interview.

Philippine headline inflation slowed to 2.1% in February from 2.9% in January, the government reported last week. This was the slowest monthly print in five months or since the 1.9% in September 2024.

This was also below the BSP’s 2.2%-3% forecast for the month and the 2.6% median estimate in a BusinessWorld poll of 18 analysts.

The Monetary Board will next meet to discuss policy on April 3.

Analysts said slower February inflation gives the BSP room to resume its rate-cut cycle at next month’s meeting following its surprise pause at last month’s review.

BSP Governor Eli M. Remolona, Jr. last month said the central bank is still in easing mode, signaling the possibility of up to 50 bps worth of cuts this year.

The Monetary Board has delivered 75 bps in reductions to borrowing costs since it began its easing cycle in August 2024, with the policy rate now at 5.75%.

The trader added that investors swamped the offer as they sought to lock in returns ahead of the upcoming cuts in banks’ reserve requirement ratios (RRR) by month-end, which would free up about PHP 300 billion in liquidity.

Effective March 28, the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions will be cut by 200 bps to 5% from 7%. Digital banks’ ratio will go down by 150 bps to 2.5%, while the ratio for thrift lenders will be lowered by 100 bps to 0%.

Rural and cooperative banks’ reserve ratio has been at 0% since October, which was the last time the BSP cut reserve requirements.

The RRR is the portion of reserves that banks must hold onto to ensure they can meet liabilities in case of sudden withdrawals. A lower ratio means banks have more liquidity, which they can use to fund their loans.

On Tuesday, the BTr will offer PHP 30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of seven years and six months.

The Treasury is looking to raise PHP 147 billion from the domestic market this month, or PHP 22 billion from T-bills and PHP 125 billion from T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.54 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy

PSEi surges to 6,300 level on BSP rate cut hopes

Philippine shares rallied for a sixth consecutive day on Monday as investors expect the Bangko Sentral ng Pilipinas (BSP) to resume its easing cycle as early as next month amid the positive outlook for inflation, especially with the implementation of measures to bring down food prices.

The benchmark Philippine Stock Exchange index (PSEi) rose by 0.99% or 62.48 points to end at 6,360.77, while the broader all shares index rose by 0.66% or 24.72 points to 3,748.92.

This was the PSEi’s highest close in nearly seven weeks or since it finished at 6,378.86 on Jan. 23.

“The local bourse rose, still on hopes that the Bangko Sentral ng Pilipinas will further ease its monetary policies following the significant slowdown in our inflation last February. Robust 2024 corporate results also helped in sustaining the market’s climb,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

“Philippine share continued the recovery, getting a boost from the better-than-expected CPI (consumer price index) reading and strengthening peso. Investors also came into the market also US equities bounced back on Friday,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

Headline inflation sharply eased to 2.1% in February from 2.9% in January and 3.4% a year ago, marking the slowest inflation print in five months, the government reported last week.

This was also below the BSP’s 2.2%-3% forecast for the month and the 2.6% median estimate in a BusinessWorld poll of 18 analysts.

The February print brought average inflation to 2.5% in the first two months, well within the central bank’s 2-4% target.

The Monetary Board will review policy on April 3. Analysts said slower inflation last month will allow the BSP to resume its easing cycle following its surprise pause at the February review.

“The PSEi gained for the sixth straight trading day after the MSRP (maximum suggested retail price) for pork took effect today as part of the non-monetary measures to further bring down pork prices and overall inflation,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

All sectoral indices closed in the green on Monday. Mining and oil surged by 3.73% or 320.65 points to 8,895.44; property increased by 1.41% or 32.25 points to 2,306.61; industrials rose by 1.22% or 107.76 points to 8,881.43; services went up by 0.95% or 19.94 points to 2,101.71; holding firms climbed by 0.79% or 41.81 points to 5,293.01; and financials inched up by 0.64% or 15.26 points to 2,378.73.

Value turnover rose to PHP 6.41 billion on Monday with 627.42 million shares exchanged from the PHP 6.33 billion with 528.06 million issues traded on Friday.

Advancers beat decliners, 122 versus 76, while 48 names were unchanged.

Net foreign buying surged to PHP 1.41 billion on Monday from PHP 158.85 million on Friday. — R.M.D. Ochave

Dollar reserves rise to USD 107B in Feb.

The Philippines’ dollar reserves rose to USD 106.65 billion as of end-February, according to the Bangko Sentral ng Pilipinas (BSP).

Preliminary data from the central bank showed gross international reserves (GIR) rose by 3.3% month on month from USD 103.27 billion as of end-January.

This was also 4.6% higher than USD 101.99 billion in the same period a year ago.

The dollar reserves were also the highest in three months or since the USD 108.49 billion posted in November.

Ample foreign exchange buffers protect the country from market volatility and ensure that it is capable of paying its debts in the event of an economic downturn.

“The month-on-month increase in the GIR level reflected mainly the National Government’s (NG) net foreign currency deposits with the BSP, which include proceeds from its issuance of Republic of the Philippines global bonds,” the central bank said.

In January, the NG raised USD 3.3 billion from the sale of 10-year and 25-year fixed-rate global bonds and seven-year euro sustainability bonds. It was NG’s first global bond offering for the year.

BSP data showed the level of dollar reserves as of end-February is enough to cover about 3.8 times the country’s short-term external debt based on residual maturity.

It is also equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.

The rise in dollar reserves was also due to the “upward valuation adjustments in the BSP’s gold holdings due to the increase in the price of gold in the international market, and net income from the BSP’s investments abroad.”

The value of the central bank’s gold holdings went up by 2.5% to USD 12.5 billion at end-February from USD 11.75 billion a month ago. It likewise jumped by 16.6% from USD 10.34 billion in the same period in 2024.

Foreign investments stood at USD 89.41 billion as of end-February, up by 3.5% from USD 86.37 billion as of end-January and by 3.4% from USD 86.45 billion a year prior.

Meanwhile, net international reserves increased by 3.3% to USD 106.6 billion from USD 103.2 billion as of end-January.

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

The BSP’s reserve assets also include foreign investments, foreign exchange, reserve position in the IMF and special drawing rights (SDR).

Reserves with the IMF dipped by 0.2% to USD 670.2 million as of end-February from USD 671.3 million a month earlier. It also declined by 10.9% from USD 752.5 million in the year-ago period.

SDRs — or the amount which the Philippines can tap from the IMF’s reserve currency basket — edged higher by 0.2% to USD 3.74 billion from USD 3.73 billion in the previous month. Year on year, it dropped by 1.1% to USD 3.78 billion.

“The increase in GIR reflects strong external buffers, which are crucial for shielding the economy against external shocks,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the rise in GIR was due to the NG’s latest global bond issuance and continued gains in gold holdings.

“Gold holdings continued to improve, largely reflecting and consistent with the 2.1% monthly gain in world gold prices, which again posted new record highs recently partly due to some flight to safe havens such as gold amid the recent global market volatility,” he said.

Mr. Ricafort also noted the increase in foreign investments amid gains in the prices of US Treasuries in February.

“The benchmark 10-year US Treasury yield already eased to 4.3%, among the lowest in three months,” he added.

For the coming months, Mr. Ricafort said the GIR could be supported by the continued growth in overseas Filipino worker (OFW) remittances, business process outsourcing (BPO) revenues, exports and the quicker recovery in foreign tourism revenue.

“OFW remittances are also expected to remain resilient, helping bolster reserves. BPO and tourism can generate foreign exchange inflows that can strengthen GIR,” Mr. Rivera added.

Oikonomia Advisory and Research, Inc. economist Reinielle Matt M. Erece likewise said the GIR will be driven by “strong OFW remittances, foreign investments, a weak peso, and trade diversion.”

The BSP is expecting a GIR level of USD 110 billion for this year.

Mr. Rivera said the central bank’s forecast for dollar reserves this year is attainable, though this would depend on the BSP’s intervention in the FX market.

“A depreciating peso could lead to higher import costs, increasing demand for the US dollar which may put pressure on reserves. However, a weaker peso also benefits dollar-earning sectors, which could offset some of the risks,” Mr. Rivera said.

“A higher import bill due to infrastructure projects and rising oil prices could widen the deficit, requiring the BSP to use reserves to stabilize the peso,” he added.

The peso closed at P57.206 per dollar on Friday, strengthening by 11.4 centavos from its P57.32 finish on Thursday. This was the peso’s best finish in nearly five months or since its P57.205-a-dollar close on Oct. 11, 2024.

“A weak peso is not necessarily disadvantageous, as it makes exports more competitive in international markets. Higher exports mean more dollar inflows,” Mr. Erece said.

“Add to that the ongoing trade conflict among large producers, which can be an opportunity for the Philippines to be an alternative trading partner for other countries.” – Luisa Maria Jacinta C. Jocson, Reporter

BSP could resume easing cycle in April — analysts

The Bangko ng Pilipinas (BSP) is expected to resume its rate-cutting cycle as early as April following slower-than-expected inflation in February, analysts said.

In a report, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the “door is now wide open for the BSP to resume easing in April.”

“Given the low inflation environment, we see a possible policy rate cut at the next Monetary Board meeting in April,” Metropolitan Bank & Trust Co. (Metrobank) Research said.

Headline inflation sharply eased to 2.1% in February from 2.9% in January and 3.4% a year ago. This also marked the slowest inflation print in five months.

This brought average inflation to 2.5% in the first two months, well within the central bank’s 2-4% target.

Pantheon expects inflation to settle at 2.7% this year as risks to the inflation outlook are tilted to the downside.

Nomura Global Markets Research analysts Euben Paracuelles and Nabila Amani likewise expect inflation to average 2.7% this year.

On the other hand, Metrobank’s full-year inflation forecast is at 3.1% “barring major supply-side shocks.”

The central bank said the risks to the inflation outlook have become “broadly balanced” for this year and the next. The BSP expects inflation to average 3.5% this year.

Analysts said the within-target inflation outlook will allow the BSP to continue easing.

Mr. Chanco said their baseline view calls for a rate cut at the Monetary Board’s April 3 meeting.

“Moreover, we’re keeping to our view that the BSP will cut by a total of 100 basis points (bps) by yearend to 4.75%, one more 25-bp cut than the consensus currently expects,” he added.

Nomura expects a total of 75 bps worth of cuts this year through the Monetary Board’s meetings in April, August and December.

“BSP still assesses the pass-through from weakening FX (foreign exchange) as limited and has ample FX reserves to intervene and stem currency volatility, and we think it will maintain a laissez-faire approach to FX policy,” it added.

Despite keeping the benchmark rate steady at 5.75% at its February policy review, BSP Governor Eli M. Remolona, Jr. has said they are still in easing mode.

He signaled the possibility of up to 50 bps worth of rate reductions this year.

The central bank slashed borrowing costs by a total of 75 bps last year through increments of 25 bps at its last three meetings of the year.

GlobalSource Partners country analyst Diwa Guinigundo said the lower February inflation will have a “material bearing on both the (BSP’s) baseline and risk-adjusted inflation forecasts for 2025 and 2026 unless a big surprise counterweights that favorable factor.”

“Anchored on this, and assuming that the balance of risks starts to twist towards the midpoint, or the downside, the BSP may be expected to resume easing its monetary policy stance.”

However, Mr. Guinigundo said “some precaution is critical.”

“We cannot dismiss the brewing price pressures in the US as a result of the Trumpian higher tariff (more expensive imports), tax cuts (more spending) and strict immigration policies (higher labor costs). They are all potentially inflationary.”

Reuters reported another reprieve of levies aimed at Mexico and Canada announced by President Donald J. Trump on Thursday offered little relief to whiplashed markets.

The exemption expires on April 2 when Mr. Trump said he will impose reciprocal tariffs on all US trading partners.

“The US Fed would then be more careful in its easing stance such that if the BSP exercises its flexibility to ease monetary policy at least twice during the year, any reduction in interest rate differential with the US could trigger capital flows and weakness in the peso,” Mr. Guinigundo said.

Fed Chair Jerome H. Powell said on Friday the US central bank will be in no rush to cut rates while it waits for more clarity on how policies of the new Trump administration affect the economy.

Mr. Guinigundo said US inflation could “act up again” as global oil markets may be disturbed.

“Indeed no one wins in a trade war, and higher though elusive inflation could be a silent proof,” he added. — Luisa Maria Jacinta C. Jocson

World Bank: Philippines can boost revenues by expanding VAT base

The Philippines can boost its revenue collections by expanding its value-added tax (VAT) base and improving tax administration, the World Bank said.

In an e-mail interview with BusinessWorld, World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said the Philippine government has “substantial space to increase VAT revenues by improving compliance and reducing exemptions and special rates.”

“The government could generate significant reforms by improving tax administration and taking steps to broaden the VAT base, through amendments in tax policy,” Mr. Mustafaoğlu said on Feb. 18.

VAT, an indirect tax that can be passed on to buyers, is a form of sales tax imposed on sale, barter, exchange, or lease of goods or properties and services.

Mr. Mustafaoğlu said the country should also address tax policy gaps and opportunities to improve tax administration.

Sought for comment, Department of Finance (DoF) Secretary Ralph G. Recto told BusinessWorld: “We are looking for ways to expand VAT base and that includes VAT on digital services among others.”

President Ferdinand R. Marcos, Jr. last October signed Republic Act No. 12023, which imposes a 12% VAT on digital services providers (DSPs), both resident and nonresident.

About PHP 7.25 billion is expected to be collected from this law this year, and another PHP 21.37 billion in 2026, and PHP 26.27 billion in 2029, the DoF said.

“Yes, we’re improving tax administration. Tax administration also includes our digitalization program. I don’t agree with the International Monetary Fund to VAT senior citizens. It is not in our value system,” Mr. Recto said.

In a 2022 report, the IMF had suggested the Philippine government increase VAT revenue by removing exemptions and zero-ratings, including those for senior citizens, who are entitled to a 12% VAT exemption granted by the Expanded Senior Citizens Act.

Meanwhile, Minimal Government Thinkers (Manila) President Bienvenido S. Oplas, Jr. said that while he agrees with the World Bank that the Philippines should broaden the tax base, he believes that the VAT rate should be reduced instead.

“But for me, broaden the VAT base by reducing the rate from 12% with plenty of exempted sectors to 7-8% with zero exempted sector except raw agriculture and fishery products,” Mr. Oplas said.

The Philippines’ 12% VAT rate is relatively higher compared with Southeast and East Asian countries, he said.

China imposes 13% VAT for general goods sales and imports, this was followed by Indonesia, which is at 12%, and Cambodia, Malaysia, Vietnam (standard rate), and Laos at 10%. Singapore’s VAT is at 9%, while Thailand has a 7% rate.

Myanmar has no VAT but imposes a commercial tax ranging from 0-15% as a turnover tax on goods and services.

Other countries such as South Korea levy a 10% VAT on goods and services, while Japan’s VAT is at 10%. Hong Kong does not have VAT, goods and services tax or sales tax.

Eleanor L. Roque, tax principal of P&A Grant Thornton, said almost all the transactions are already subject to VAT, and increasing taxes affects the most vulnerable.

“Other exempt transactions like sale of certain food items are exempted because increasing their cost due to VAT is detrimental to our vulnerable population,” she told BusinessWorld via an e-mailed statement.

Ms. Roque suggested that regulators should focus on improving taxpayer compliance and simplifying tax rules.

She also argued that the Philippines is not “lesser taxed” compared with its Association of Southeast Asian Nations neighbors.

Meanwhile, Jose Enrique “Sonny” A. Africa, executive director at think tank IBON Foundation, said expanding the VAT base would distort consumption patterns of the low-income households.

“Especially in the context of the Philippines with such wide gaps in income and wealth, the design of the tax system should be rigorously guided by equity considerations and not just by revenue collection,” he said.

He noted that the government’s reliance on VAT has significantly increased as it accounts for 18.9% of BIR revenues in 2023 from 7.9% in 1989.

Mr. Africa said the government should instead impose higher tax rates on luxury goods like luxury cars, jewelry, designer goods and other high-end products in the “inherently regressive VAT system.”

However, he noted the government should grant VAT exemptions for food and agricultural products, educational services, healthcare, specific goods for seniors and persons with disability, and reading materials. – Aubrey Rose A. Inosante, Reporter

BAP mulls opening peso interest rate swap mart to foreigners

The Bankers Association of the Philippines (BAP) wants to open the peso interest rate swap (IRS) market to offshore investors as the platform continues to be developed.

Citi Philippines Country Head and Chief Executive Officer and BAP Open Market Committee Chairman Paul Raymond A. Favila said the peso IRS market has seen increased volume since its launch in November.

“I think we’ve seen quite a fair amount of progress in terms of volume already. But there’s still a long way to go in terms of adoption,” Mr. Favila told reporters at an event on Thursday.

“Now, we are also looking at opening up that market as we should, even for offshore investors. Because they need that, right? If you want to invest in the Philippines, you need to have a way to hedge yourself. So, those are very much consistent with everything that we are trying to do,” he said.

The enhanced peso IRS market began operations in November and is being handled by BAP to promote the development of yield curves to further support the pricing requirements of short-term credit instruments, such as loans.

The launch followed the release of the updated International Swaps and Derivatives Association (ISDA) on Nov. 15.

The Philippine Overnight Reference Rate (ORR) was included in the rates published by the ISDA. The BAP had developed the Philippine ORR, which is based on the Bangko Sentral ng Pilipinas’ (BSP) variable overnight repurchase rate.

The BSP has said that the IRS market will deepen the local capital markets, which would enhance savings and investments as well as strengthen the transmission of monetary policy.

Mr. Favila said the market’s operation is paving the way for the availability of data, which could attract potential participants.

“The challenge now as we are creating the historical data is for clients to start looking and saying, ‘I’m comfortable with this. Now I’d like to get engaged.’ So, that’s one step,” he said.

“That’s the next step, actually — getting more clients to actually ask questions, if not actually want to start using it. And then with the BSP, we are anticipating further developments on the repo (repurchase) space.”

The BSP and the BAP earlier said the repo market for government securities will also be expanded to boost trading and provide an alternative benchmark for short-term loan rates.

Mr. Favila added that increased activity would boost the development of the local capital market.

“In general, very positive,” he said when asked about his outlook for the peso IRS market. “We want to make sure that there is more reception coming from the end users. I always stress that this is not a market just amongst the banks. Otherwise, it doesn’t serve a purpose. It becomes speculative.”

“There are many, many legs to this whole thing, but for as long as they are all pointing in the same direction, I think we’re in a good place. So, we continue to track that very closely.” — AMCS

Philippine jobless rate hits 6-month high

The Philippines’ unemployment rate in January rose to its highest level in six months, as hiring declined after the holiday season, the statistics agency said on Thursday.

Preliminary data from the Philippine Statistics Authority’s (PSA) Labor Force Survey showed the jobless rate at 4.3% in January, slightly lower than 4.5% a year ago but higher than 3.1% in December.

This translated to 2.16 million jobless Filipinos in the first month of the year, unchanged from January 2024 but higher than the 1.63 million seen in December 2024.

January saw the highest unemployment rate since 4.7% in July 2024.

At a news briefing, PSA Assistant Secretary Divina Gracia L. Del Prado said higher unemployment is always seen in January.

“If you look at the series, it always happens — employment shoots up in December, and then suddenly in January, it drops because there’s no longer a demand,” she said in mixed English and Filipino.

Bicol Region recorded the highest unemployment rate with 6.5%, while Zamboanga Peninsula had the lowest with 2.3%.

“While we welcome this development, we also acknowledge that these additional jobs are classified as vulnerable. Therefore, our strategy remains clear: to sustain job creation by fostering a dynamic and investment-friendly economy while preparing our workforce for high-growth and emerging industries that offer high-quality, well-paying jobs,” National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said in a statement.

Meanwhile, underemployment slipped to 13.3% in January, equivalent to 6.47 million from 13.7% in the same month a year ago.

However, January underemployment — the proportion of those already working, but still looking for more work or longer working hours — rose from 10.9% in December.

It was also the highest in nine months or since April 2024 when it hit 14.6%.

“The industry with the largest share of underemployment is agriculture and forestry. Agriculture accounts for 44.5% of total underemployment. Nearly half of those employed in the sector consider themselves underemployed,” Ms. Del Prado said in Filipino.

Soccsksargen (South Cotabato, Cotabato, Sultan Kudarat, and Sarangani) had the highest underemployment rate at 29.5%, while the Davao Region was the lowest at 3.3%.

PSA data showed the size of the labor force stood at approximately 50.65 million Filipinos aged at least 15 years old, yielding a labor force participation rate (LFPR) of 63.9%. This was higher than the 61.1% in January 2024, equivalent to a labor force of 48.06 million.

The LFPR is the percentage of the population that is economically active.

“This suggests robust employment growth compared to last year… due [to] more money circulating in the economy as a result of election spending by candidates and the flood of aid,” University of the Philippines Diliman School of Labor and Industrial Relations Assistant Professor Benjamin B. Velasco told BusinessWorld in a Facebook Messenger chat.

The youth LFPR rose to 31.8% in January from 29.7% in January 2024.

Finance Secretary Ralph G. Recto is optimistic that youth participation in the labor force will continue to increase amid government efforts to “harness the country’s demographic sweet spot.”

“We have a multifaceted strategy to sustain our dynamic labor market, focusing on education and workforce development, infrastructure, and investments. We are investing heavily in both intellectual and physical infrastructure,” Mr. Recto said in a statement.

PSA data also showed the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) recorded the highest LFPR with 72.5%, while the Bicol Region recorded the lowest with 59.1%.

CONCERNS
Federation of Free Workers (FFW) President Jose Sonny G. Matula said the latest jobs data raises serious concerns.

“Unemployment, underemployment, and precarious work arrangements continue to rise, underscoring the urgent need for economic reforms that will provide stable, high-paying jobs while ensuring that businesses can sustain growth,” he told BusinessWorld in a Viber chat.

PSA data showed the employment rate, which is the proportion of the employed to the total labor force, stood at 95.7% in January. This was a tad higher than the employment rate of 95.5% in the same month in 2024.

About 48.49 million Filipinos had jobs in January, higher than 45.9 million in the same month last year but lower than 50.19 million in December 2024.

Zamboanga Peninsula had a 97.7% employment rate, the highest in the country, while Bicol Region had the lowest at 93.5%.

The services sector remains the largest employer, accounting for 61.6% of jobs, followed by agriculture and forestry (21.1%) and industry (17.2%).

Most jobs in the services sector are contractual, seasonal, or precarious, Mr. Matula noted.

“Many workers are trapped in labor-only contracting schemes, job orders (JOs) or contracts of service (COS) without security of tenure, and short-term employment cycles that offer no long-term stability,” he said.

Bukluran ng Manggagawang Pilipino President Renecio S. Espiritu, Jr. said the higher underemployment rate shows Filipinos are struggling with insufficient wages or jobs that do not match their background.

“Workers in critical sectors like manufacturing continue to decline due to rampant contractualization and union-busting,” Mr. Espiritu said in Filipino.

He also pointed out the “very low” LFPR for women at 52.9%.

“This means we are either wasting a significant portion of our labor power or failing to recognize the reproductive work that women perform — both of which are simply unacceptable,” Mr. Espiritu said.

Meanwhile, agriculture and forestry had the biggest annual increase in jobs in January, adding 883,000 jobs. This was followed by wholesale and retail trade, repair of motor vehicles and motorcycles (850,000); accommodation and food service activities (533,000); and transportation and storage (141,000).

On the other hand, manufacturing shed 209,000 jobs in January, the highest among subsectors. The professional, scientific and technical activities sector cut 58,000 jobs, followed by arts, entertainment and recreation (29,000), and construction (11,000).

Wage and salary workers accounted for 63% of the workforce in January, followed by self-employed individuals without paid employees (28.2%), and unpaid family workers (6.6%). The smallest share belonged to employers in family-operated farms or businesses at 2.2%.

Working hours averaged 40.4 hours per week in January, lower than the average of 42.2 hours a year ago. – Chloe Mari A. Hufana, Reporter

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