Philippines Macroeconomist/Strategist

Jun Trinidad

Macroeconomics

<ul class="">
<li>The Monetary Board’s (MB) recent decision to hike its policy rate by 25bp sustained the process of slaying inflation risk in whatever size or form. Elevated inflation expectations (IE), possible wage pressures, and risk from ‘continued uncertainty in the external environment’ were cited as having provided the basis for a +25bp adjustment.</li>
</ul>
<ul class="">
<li>The MB’s recent press release was silent on fading oil price pressures while noting the favorable economic prospects offer space for some scope of measured policy rate adjustment to contain IE and 2<sup>nd</sup>-round price effects. </li>
</ul>
<ul class="">
<li>Having noted 'price risks from continued uncertainty in the external environment amid tighter global financial conditions and trade tensions among major economies’, the MB indirectly referred to PHP volatility amid strong USD effect as likely affecting inflation risk.</li>
</ul>
<ul>
<li>We expect some relief next month from the BSP’s tightening stance likely to be driven mainly by the November CPI data that reinforces the BSP’s revised inflation forecasts of 3.5% in 2019 (previously 4.3%) and 3.3% (previously 3.2%) in 2020.</li>
</ul>
<ul class="">
<li>The recent MB action was hawkish but not 'uber’ hawkish like what we saw in the scheduled August and September meetings such that incremental pressure on the local yield curve would still be expected. In our opinion, this offers an excellent opportunity to buy bonds with conviction, cherry picking from the belly to the long end. </li>
</ul>


The Monetary Board’s (MB) recent decision to hike its policy rate by 25bp sustained the process of slaying inflation risk in whatever size or form. Elevated inflation expectations (IE), possible wage pressures, and risk from ‘continued uncertainty in the external environment’ were cited as having provided the basis for a +25bp adjustment.


The MB’s recent press release was silent on fading oil price pressures while noting the favorable economic prospects offer space for some scope of measured policy rate adjustment to contain IE and 2nd-round price effects. 


Having noted 'price risks from continued uncertainty in the external environment amid tighter global financial conditions and trade tensions among major economies’, the MB indirectly referred to PHP volatility amid strong USD effect as likely affecting inflation risk.


We expect some relief next month from the BSP’s tightening stance likely to be driven mainly by the November CPI data that reinforces the BSP’s revised inflation forecasts of 3.5% in 2019 (previously 4.3%) and 3.3% (previously 3.2%) in 2020.


The recent MB action was hawkish but not 'uber’ hawkish like what we saw in the scheduled August and September meetings such that incremental pressure on the local yield curve would still be expected. In our opinion, this offers an excellent opportunity to buy bonds with conviction, cherry picking from the belly to the long end. 


Philippines Stock Exchange PSEi Index (PCOMP INDEX)

Philippine Central Bank Hikes by 25bp but Relief Soon After?