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Philippines Macroeconomist/Strategist

Jun Trinidad

Macroeconomics

<ul>
<li>With SST (sea surface temperature) in the Pacific past 26<sup>o</sup>C, El Niño’s comeback is highly likely. Past occurrences of severe El Niño was isolated in the farm sector with upside risks to food prices. While another round of contraction in farm output and employment would be expected, the liberal rice import policy would entice imports to plug the gap between demand-supply in 1H19 and ease potential rice/food price upticks. </li>
</ul>
<ul>
<li>The El Niño supply shock would coincide with the global macro slowdown and fiscal spending delays that spawn downside risks to growth. With a legally handicapped fiscal budget, monetary policy may have to step up to ease likelihood of severe, near-term constraints to growth. We believe monetary adjustments would be the appropriate responses to the macro challenges as inflation winds down. Sequencing and appropriate timing of monetary reaction remains key to credible policy responses starting with the bank reserve ratio cut in 2Q19 (staggered cuts for a maximum of 3% this year) followed by policy rate cuts commencing in 3Q19 (cumulative -50bp in 2H19) when inflation hits rock bottom of less than 2%.</li>
</ul>
<ul>
<li>Buy bonds with preference for the curve’s belly to short-duration.</li>
</ul>


With SST (sea surface temperature) in the Pacific past 26oC, El Niño’s comeback is highly likely. Past occurrences of severe El Niño was isolated in the farm sector with upside risks to food prices. While another round of contraction in farm output and employment would be expected, the liberal rice import policy would entice imports to plug the gap between demand-supply in 1H19 and ease potential rice/food price upticks. 


The El Niño supply shock would coincide with the global macro slowdown and fiscal spending delays that spawn downside risks to growth. With a legally handicapped fiscal budget, monetary policy may have to step up to ease likelihood of severe, near-term constraints to growth. We believe monetary adjustments would be the appropriate responses to the macro challenges as inflation winds down. Sequencing and appropriate timing of monetary reaction remains key to credible policy responses starting with the bank reserve ratio cut in 2Q19 (staggered cuts for a maximum of 3% this year) followed by policy rate cuts commencing in 3Q19 (cumulative -50bp in 2H19) when inflation hits rock bottom of less than 2%.


Buy bonds with preference for the curve’s belly to short-duration.


Philippines Stock Exchange PSEi Index (PCOMP INDEX)

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