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Philippines inflation hits four month low

Good news at last for the Philippines economy with inflation falling in November to a four-month low of 6%, after hitting 6.7% in the two previous months, its highest level in almost a decade.

As one of southeast Asia’s fastest growing economies, the Philippines looks set to see continuing GDP growth in 2019 with latest inflation figures indicating positive signals for the year ahead.

After holding steady at 6.7% in September and October, inflation fell significantly to 6% in November mainly due to a slowdown in food and global fuel prices, and the Bangko Sentral ng Pilipinas (BSP) raising policy rates by a cumulative 175 basis points (bps) since May to 4.75%. Following BSP’s November 15 rate hike, market analysts predict that it will hold off any further hikes in 2018, even if the US Federal Reserve continues its hiking cycle.

According to First Metro Investment Corporation (First Metro) and the University of Asia and the Pacific’s Capital Market Research analysts’ November report – The Market Call – despite the nation’s lower than expected third quarter gross domestic product (GDP) results, steady growth lies ahead, based on the nation’s third quarter GDP growth of 6.1% - a figure only exceeded by its regional neighbours – Vietnam (7%) and China (6.5%).

November’s report reveals that drags on the economy such as weaker consumer spending and seasonal weather that included September’s super-typhoon Mangkhut – which dampened agricultural output – were counterbalanced by elevated private and public investment in infrastructure, capital outlays and improving exports.

After its earlier 2018 decline, the Philippines Stock Exchange index (PSEi) recovered above bear market thresholds in mid-November, leaving some room for further optimism in 2019.


The Market Call’s authors predict faster GDP growth of 6.6% for the final quarter of 2018 created by ongoing equipment and construction investment adding to a modest rebound in exports. Unless the BSP allows significant appreciation of the peso, First Metro’s analysts believe higher dollar remittances in the final quarter of the year should support consumption and create a buffer against the effects of inflation.

The nation’s economy is however, battling global and domestic uncertainty, and these combined headwinds are likely to continue to impact the PSEi into the new year. 


While inflation appears to have peaked, First Metro sees that local factors such as higher minimum wages and transport fare hikes could counter the improving outlook and may create some tentativeness in the bond market as the year draws to a close. Although the report’s analysts predict 2019’s outlook will be positive, they warn that care needs to be exercised in the near-term as major banks raise capital before the end of the year.

Trading volume in the government securities secondary market bounced back in October by as much as 54.7% to P160 billion ($3.211 billion) month-on-month when compared to September’s results.

Trades in corporate bonds in the secondary market rose by 101.8% to P3.4 billion in October, up from September’s P1.7 billion. When compared to October 2017 corporate bond trading showed a 4.7% increase year-on-year.

Yields in Philippine government dollar-denominated bonds (ROPs) moved higher in October with ROP-32 (14 years to maturity) yields up 4.41% or 23 bps higher than in September while ROP-37 yields (20 years to maturity) were up 4.51% or 24.3 bps. While longer-term ROP yields rose more than the equivalent US Treasuries as investors shied away from emerging market assets, ROP-19 (due in three months) shed 49.8 bps to close at 2.32%.

US T-bonds generally increased in yield but at a slower pace than ROPs with 2-year US T-bonds at 2.86%, a rise of 9 bps from the previous month. Long tenor 15-year US T-bonds lifted by 17 bps to 3.21% and 20-year US T-bonds yields rose by 5.3 bps to 124.4 bps.

Monthly trading volume (in million pesos) of top fie corporate bonds (Aug-Oct 2018)

Source: Philippine Dealing Systems (PDS)


The International Monetary Fund’s (IMF) outlook for 2019, released in October, predicts slower economic growth in China, Japan and key emerging markets for the year ahead. While global stock markets slumped in October, partly attributed to the growth slowdown forecast by the IMF, the PSEi remained one of the best-performing markets in ASEAN despite falling 1.9% in that month.

Given global and domestic impacts, First Metro’s analysts predict the PSEi is only likely to move upwards in the second quarter of 2019, after the US mid-term elections and if economic growth climbs to around 7%.

The November report indicates mixed performance for individual sectors. Mining and oil reversed its 9.4% drop in September, to gain 6.7% in October. Results for the financial and industrial sectors were muted while holdings, services and property lost value – of between 2.2% to 3.5%. The last quarter of 2018 also saw the Philippines stock market’s turnover volume contract further in October falling another 4% on top of its 13.1% decline in September.

For more insights from this report, courtesy of First Metro Investment Corporation please click here

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