Surprise rate cut unlikely

The Bangko Sentral ng Pilipinas (BSP) is expected to remain accommodative the entire year as the Omicron variant will further stall economic recovery in the Philippines.

In its weekly brief, London-based Capital Economics maintained that the central bank would not deliver any surprise rate adjustment, with monetary policy remaining loose for 2022.

It noted that inflation continues to fall and the economy is still well below its pre-crisis level, and is facing yet another hiccup amid another COVID-19 surge due to the Omicron variant.

“Falling inflation and an increasingly uncertain economic outlook add weight to our non-consensus view that the central bank in the Philippines will not start tightening in 2022,” economist Alex Holmes said.

Inflation slid to 3.6 percent in December, its lowest for 2021. Capital Economics is looking at a further drop to 2.4 percent this January.

Apart from falling inflation, Holmes said the economic outlook for the Philippines has worsened due to the latest surge in COVID-19 cases as the Omicron variant spreads.

Yesterday, the country hit another record high in daily infections, logging 28,707 new cases.

Metro Manila and several other provinces were reverted to Alert Level 3 amid the surge in cases.

Such a move effectively limited capacity in establishments and other service industries.

“South Africa’s experience suggests that the Omicron wave could be shorter and less economically damaging than previous waves,” Holmes said.

“Nonetheless, these measures will weigh on the recovery of the services sector and support our view that the central bank will look to keep rates low,” he said.

The market consensus is for the BSP to hike rates by at least 30 basis points by end-2022.

While the Philippines is facing another snag in recovery, Holmes noted that the country and the rest of Asia are learning to live with the virus.

The think tank expects the disruption to economic activity to be much less severe than it was during previous waves of the virus in 2020 and 2021.

“Provided fiscal support is forthcoming, activity should bounce back quickly once restrictions are eased and people’s behavior returns to normal,” Holmes said.

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Source: Philstar and Capital Economics

Pinoys prefer e-wallets more than bank accounts

Financial technology (fintech) companies continue to threaten Philippine banks that remain slow in developing digital services, Moody’s Investors Services said in a report.

The debt watcher said the penetration of mobile wallets in the Philippines has surpassed that of bank accounts, adding that the number of debit cards per 1,000 adults has decreased 22 percent since 2015.

“Slow development of digital services by Philippine banks weakens their growth prospects,” Moody’s said.

It said the Philippines would continue to benefit from the growth in working-age population due to its favorable demographics, supportive operating environment for retail loan growth and social stability.

“While the combination of these factors is similarly promising in the Philippines, banks in this country remain slow in developing digital services, leaving room for growing fintech companies to threaten banks’ position in key areas of the retail segment,” it added.

The credit rating agency said India and Indonesia, the world’s second and fourth most populated countries, would see their work force grow a further 17 percent and 14 percent, respectively, in the next two decades.

This would provide a favorable backdrop for the growth of banks’ profitability in India and Indonesia.

“In the majority of emerging markets, banks will continue to benefit from the expansion of working-age populations. Yet the demographics of those countries pose their own risks for banks,” Moody’s said.

On the other hand, in a small but growing number of emerging markets, Moody’s said the aging of populations would make it difficult for banks to grow and improve profitability, although there are factors that mitigate the impact of the demographic changes.

Under its Digital Payments Transformation Roadmap, the Bangko Sentral ng Pilipinas (BSP) has committed to convert 50 percent of total retail transactions to electronic channels and increase the number of Filipino adults with bank accounts to 70 percent by 2023.

Last Aug. 19, BSP Governor Benjamin Diokno announced the Monetary Board has approved the closure of window for establishment of digital banks and limiting the number of licenses to seven.

The moratorium allows the regulator to monitor the performance and impact of digital banks on the banking system and their contribution to the financial inclusion agenda.

Source: Philstar and Moody

CPI base year to be changed to 2018 starting January

The Philippine Statistics Authority (PSA) said the base year for the consumer price index (CPI) will change to 2018 starting in January, to reflect changing Filipino household consumption patterns such as the shift to e-commerce.

National Statistician Claire Dennis S. Mapa said the PSA board approved the CPI rebasing to 2018 from 2012 at its Nov. 9 meeting.

“The rebasing of the CPI is done periodically by the PSA to ensure that the CPI market basket continues to capture goods and services commonly purchased by households over time; to update expenditure patterns of households; and to synchronize its base year with 2018 base year of the gross domestic product and other indices produced by PSA,” Mr. Mapa said in a Viber message.

This move is also in line with a board resolution that directs the synchronized rebasing of the price indices to base year 2006 and every six years moving forward, he added.

The change to 2018 as the new base year of the index will begin with the January inflation, which will be reported on Feb. 4.

Despite some recalibration, the food index will still have the largest weight for the rebased index, Mr. Mapa said.

The PSA has adjusted its information-gathering process in assessing prices during the pandemic. With restrictions in place, Mr. Mapa said they used alternative methods such as e-mails and phone surveys.

He added that the agency had factored in the rise of e-commerce and how it has affected people’s consumption.

“Because of the changing platform of business transactions and the existence of new technology, web scraping is explored as an alternative price collection method for the commodities in the market basket of the CPI for the National Capital Region,” Mr. Mapa said.

Bangko Sentral ng Pilipinas (BSP) Senior Assistant Governor Iluminada T. Sicat cited the PSA’s move to review the base year of the consumer basket.

“The items that are included in that year [2018] does not reflect yet the changes in the consumption pattern that happened during the pandemic,” she said.

“So we’re carefully looking at the different items that are providing movements in the inflation and we are carefully monitoring the increases or decreases in those items in the basket,” she added.

Security Bank Corp. Chief Economist Robert Dan J. Roces welcomed PSA’s move in light of changes in Filipinos’ consumption patterns.

“This makes it more able to capture recent consumer behavior, including the newer channels of consumption — such as e-commerce — that may be reflective of the latest causes of price changes,” he said in a Viber message.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said rebasing the price index could bode well for inflation numbers.

In 2018, inflation reached multi-year highs, peaking at 6.7% in September and October. This was mainly caused by elevated rice prices.

The BSP in the same year raised interest rates by 175 basis points to soothe inflation.

“Rebasing CPI to 2018 will likely improve the 2021 optics since the share of transport, petroleum products and rice will likely be given more weight than meat,” he said.

“If a smaller weight is given to meat products, which has been the main contributor to 2021 headline inflation, the optics will likely improve. It will not, however, erase the fact that real policy rates have been kept negative for the longest recorded period in our economic history,” he added.

Headline inflation this year has exceeded the 2-4% BSP target every month except July. This was mainly driven by low pork supply amid the African Swine Fever outbreak and soaring global oil prices.

In October, inflation eased to 4.6% from 4.8% in September, bringing the year-to-date average to 4.5%.

The central bank expects inflation at 4.3% this year, with the November rate falling within target.

The BSP has vowed that it will focus on keeping its support for economic recovery, saying it expects inflation to settle back to its target in the next two years.

The Monetary Board earlier this month kept interest rates steady and will review its policy in its last meeting this year on Dec. 16.

Source: Businessworld