Philippines central bank keeps rates on hold as inflation moderates

BSP keeps rates at 6.25%

Bangko Sentral ng Pilipinas (BSP) kept policy rates unchanged at 6.25%, in line with expectations of a pause. BSP has lifted policy rates aggressively over the past few months to deal with surging price pressures, but with headline inflation on the downtrend, Governor Felipe Medalla opted to refrain from tightening further.

Furthermore, the recently-released first quarter GDP report shows signs that growth momentum is fading, suggesting that the string of rate hikes are already taking their toll on the economy.

Headline inflation, which peaked at 8.7% year-on-year in January has since slowed to 6.6%YoY as of April, although core inflation remains elevated at 7.9%YoY. Meanwhile, BSP lowered its inflation forecast for 2023 and 2024 to 5.5% (6.0% previous) and 2.8% (2.9% previous) respectively.

Real policy rates likely to revert to positive territory this month

Bangko Sentral ng Pilipinas and PSA

Prudent pause

BSP opted to keep rates unchanged at 6.25% today but did leave the door open for potential action should data evolve in a manner that would require additional policy moves. The central bank did admit that risks to the inflation outlook are tilted to the upside, but it also believes that inflation will revert to target by the fourth quarter of 2023. BSP opted to carry out a “prudent pause”, retaining policy rates at restrictive levels to tackle elevated core inflation while also refraining from hiking rates given lower 2023 and 2024 inflation forecasts. We expect BSP to keep policy rates steady in the near term while standing ready to tighten further should inflation trends reverse.

Meanwhile, Medalla also hinted at the much-anticipated reduction in reserve requirements (RR) as early as the June policy meeting. We expect the BSP to maintain policy rates at 6.25% in the coming months while reducing RR by 200bps to 10% in June.

Source: ING

OFW remittances up by 3.0% in March

The remittances of Overseas Filipino Workers (OFW) rose by 3.0 percent year-on-year to $2.97 billion in March from $2.89 billion last year, the Bangko Sentral ng Pilipinas said Monday.

The increase was attributed to higher remittances from land-based workers with contracts of a year or more and sea- and land-based OFWs with contracts of less than a year.

Month-on-month, the remittances also increased by 3.8 percent from a record $2.86 billion in February.

Personal remittances expanded to $8.91 billion in the first quarter of 2023, 3.0 percent higher than the $8.65 billion recorded in the same period last year.

Cash remittances coursed through banks in March also rose by 3.0 percent to $2.67 billion from $2.59 billion in the same month a year ago. This was also higher than the $2.57 billion recorded in February.

In the first three months of 2023, cash remittances through banks accelerated by 3.0 percent to $8.0 billion from $7.77 billion in the same period of 2022.

"The growth in cash remittances from the United States (US), Singapore, Saudi Arabia, and the United Arab Emirates (UAE) contributed mainly to the increase in remittances in the first quarter of 2023," the central bank said in a statement.

The US accounted for the biggest share -- 41.4 percent -- of overall remittances in March 2023, followed by Singapore (7.3 percent), Saudi Arabia (5.8 percent) and Japan (5.1 percent).

They were followed by the United Kingdom (4.4 percent), UAE (4.2 percent), Canada (3.1 percent), Qatar (2.7 percent), Taiwan (2.7 percent), and Hongkong (2.5 percent).

Source: Manila Times

February FDI inflows highest in 14 months

Foreign direct investment (FDI) net inflows rose by 13% in February to its highest level in 14 months, amid improving investor sentiment towards the Philippines.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed that FDI net inflows climbed to $1.05 billion in February from $926 million in the same month in 2022.

Net inflows of FDIs in February was more than double the $448-million inflows seen in January.

This was also the highest level in 14 months, or since the $2.66-billion net inflows in December 2021.

“FDI is up on improved sentiment with [the Philippines’] potential for growth, as well as the efforts of the economic managers to attract these,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

Since the start of the year, President Ferdinand R. Marcos, Jr. has made several trips to Japan, Switzerland (for the World Economic Forum), China and most recently, the United States as part of efforts to woo investors.

Around $13 billion worth of investment commitments were made during the Japan visit in February, according to officials.

The BSP attributed the year-on-year increase in FDI to the higher non-residents’ net investments in debt instruments, which offset the drop in net equity capital placements and reinvestment of earnings.

BSP data showed non-residents’ net investments in debt instruments of local affiliates jumped by 19.4% to $910 million in February, from $762 million a year ago.

On the other hand, investments in equity and investment fund shares declined by 16.7% in February to $136 million from $164 million in the same month in 2022.

Non-residents’ net investments in equity capital (other than reinvestment of earnings) dropped by 23.6% to $74 million in February from $97 million a year ago. Equity capital withdrawals surged by 101% to $38 million, while placements slid by 3.1% to $113 million.

“The jump in February [FDIs] can be traced largely to an increase in debt instruments and to a lesser extent, fresh equity placements,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

The equity placements were mainly from Japan, the United States, and the Cayman Islands. These were invested mostly in manufacturing, real estate, electricity, gas steam and air-conditioning supply, and financial and insurance industries.

Reinvestment of earnings also slipped by 6.5% to $62 million year on year in February.

DECLINE

Meanwhile, total FDI net inflows declined by 14.6% to $1.49 billion in the January-to-February period, from the $1.75-billion net inflows in the same period last year.

Investments in equity capital other than reinvestment of earnings slumped by 18.1% to $167 million in the first two months. Placements rose by 11.7% to $261 million, while withdrawals surged by 215% to $94 million.

Reinvestment of earnings dipped by 1% to $137 million in the two-month period.

Also, investments in debt instruments dropped by 15.4% to $1.19 billion in the January-to-February period.

BSP Governor Felipe M. Medalla said there is strong interest for the Philippines from foreign investors.

“[But] whether when it will be actually translated to actual foreign direct investments will depend on many things,” he said in an interview with The Banker on the sidelines of the Asian Development Bank (ADB) annual meetings in Seoul, South Korea.

Still, Mr. Medalla said there is optimism that the current administration’s policies and recent economic reforms will help attract more foreign investments.

“More and improved diplomatic relations recently, especially with developed countries that are the biggest sources of foreign investments, would help improve the FDI data in the coming months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort

For ING’s Mr. Mapa, still-robust economic growth could help attract more FDIs into the country.

“The influx of foreign currency could provide an additional source of foreign exchange as well as work to fund productive ventures in the country, hopefully leading to job creation,” he said.

Source: Business World