Philippines Macroeconomist/Strategist

Jun Trinidad

Macroeconomics

<ul class="">
<li>Amid typhoon-driven, supply shocks, rising but 'transitory' food prices, and domestic demand remaining firm, the Monetary Board (MB) approved another 50bp rate hike in its recent policy rate meeting (9/27) to raise the policy rate to 4.5% from 3% at the start of the year.</li>
</ul>
<ul>
<li>Lacking an excessive demand condition, the MB’s 50bp hike was aimed at stabilizing elevated inflation expectations while helping ‘to steer inflation toward a target-consistent path over the medium term.’ The MB’s press release after the meeting affirmed policymakers’ hawkish leanings.</li>
</ul>
<ul class="">
<li>The pass-through effects of a cumulative tightening gesture of 150bp hike since start of the year that has resulted in the shift up of the local yield curve implied erosion of the interest rate differential handicap suffered by PHP facing a strong USD. Recently, Treasury accepted limited bids in its recent 7-yr local bond auction (pre-MB meeting) that fetched an average yield of 7%. This is an increase of slightly more than 100bp from Treasury’s previous 7yr auction last June. </li>
</ul>
<ul>
<li>We noted that local bond yields from the belly to the long-end seemed to react to upside inflation surprises rather than to the rate hike event. The latest inflation print in relation to survey estimates may provide market participants a basis--right or wrong, for developing a view of the next BSP policy rate move.  </li>
</ul>
<ul>
<li>After the MB meeting, a senior monetary official stated that succeeding MB policy rate decisions would be ‘data dependent’. Oct CPI data (likely peakish after food supply shocks drive inflation beyond 7%YoY in Sep) and 3Q GDP release (expect GDP growth of less than 6%YoY) would underpin MB policy decisions in Nov and Dec.</li>
</ul>


Amid typhoon-driven, supply shocks, rising but 'transitory' food prices, and domestic demand remaining firm, the Monetary Board (MB) approved another 50bp rate hike in its recent policy rate meeting (9/27) to raise the policy rate to 4.5% from 3% at the start of the year.


Lacking an excessive demand condition, the MB’s 50bp hike was aimed at stabilizing elevated inflation expectations while helping ‘to steer inflation toward a target-consistent path over the medium term.’ The MB’s press release after the meeting affirmed policymakers’ hawkish leanings.


The pass-through effects of a cumulative tightening gesture of 150bp hike since start of the year that has resulted in the shift up of the local yield curve implied erosion of the interest rate differential handicap suffered by PHP facing a strong USD. Recently, Treasury accepted limited bids in its recent 7-yr local bond auction (pre-MB meeting) that fetched an average yield of 7%. This is an increase of slightly more than 100bp from Treasury’s previous 7yr auction last June. 


We noted that local bond yields from the belly to the long-end seemed to react to upside inflation surprises rather than to the rate hike event. The latest inflation print in relation to survey estimates may provide market participants a basis--right or wrong, for developing a view of the next BSP policy rate move.  


After the MB meeting, a senior monetary official stated that succeeding MB policy rate decisions would be ‘data dependent’. Oct CPI data (likely peakish after food supply shocks drive inflation beyond 7%YoY in Sep) and 3Q GDP release (expect GDP growth of less than 6%YoY) would underpin MB policy decisions in Nov and Dec.


Philippines Stock Exchange PSEi Index (PCOMP INDEX)

Philippines: Another Aggressive BSP Rate Hike Mirrors Its Hawkish Stance