Philippines Macroeconomist/Strategist

Jun Trinidad

Macroeconomics

<ul>
<li>The anticipated cut in the bank reserve ratio didn’t materialize in the latest Monetary Board (MB) meeting--the first one chaired by newly appointed BSP Gov. Benjamin Diokno. In the ANC televised interview, Diokno expressed his preference to reduce the high bank reserve requirement ratio (RRR: 18%) by 1% every quarter, fueling bond market excitement that severely compressed yields. The policy rate was also unchanged amid the dovish tone in the BSP’s press release after the meeting.</li>
</ul>
<ul>
<li>According to a senior monetary official, the RRR cut is a ‘live’ issue. That the timing of any adjustment is key given the operational and policy implications of an RRR cut.</li>
</ul>
<ul>
<li> Accentuating the MB’s depiction of benign inflation is an inflation trajectory settled comfortably in its target band in 2019-20 with inflation expectations close to being anchored within the band as well.  Key downside risk to growth cited by the MB is the ‘current budget impasse in Congress is not resolved soon’. Prolonged El Niño is among those factors that can upset the broadly balanced risks to inflation.</li>
</ul>
<ul>
<li>A BSP under a pro-growth BSP chief need not necessarily change the ‘sequencing and timing’ of monetary policy decisions/actions facing liquidity and growth challenges. Likelihood that 1Q GDP (May 9 release) may be given slight emphasis in the BSP’s shift to accommodation starting with the bank reserve cut.<strong>  </strong>
</li>
<li>We expect a bond market correction following excitement over the BSP’s dovish pivot this early that led to severe yield compression. Buy the 5yrs to short-duration on dips.</li>
</ul>


The anticipated cut in the bank reserve ratio didn’t materialize in the latest Monetary Board (MB) meeting--the first one chaired by newly appointed BSP Gov. Benjamin Diokno. In the ANC televised interview, Diokno expressed his preference to reduce the high bank reserve requirement ratio (RRR: 18%) by 1% every quarter, fueling bond market excitement that severely compressed yields. The policy rate was also unchanged amid the dovish tone in the BSP’s press release after the meeting.


According to a senior monetary official, the RRR cut is a ‘live’ issue. That the timing of any adjustment is key given the operational and policy implications of an RRR cut.


 Accentuating the MB’s depiction of benign inflation is an inflation trajectory settled comfortably in its target band in 2019-20 with inflation expectations close to being anchored within the band as well.  Key downside risk to growth cited by the MB is the ‘current budget impasse in Congress is not resolved soon’. Prolonged El Niño is among those factors that can upset the broadly balanced risks to inflation.


A BSP under a pro-growth BSP chief need not necessarily change the ‘sequencing and timing’ of monetary policy decisions/actions facing liquidity and growth challenges. Likelihood that 1Q GDP (May 9 release) may be given slight emphasis in the BSP’s shift to accommodation starting with the bank reserve cut.  

We expect a bond market correction following excitement over the BSP’s dovish pivot this early that led to severe yield compression. Buy the 5yrs to short-duration on dips.


Philippines Stock Exchange PSEi Index (PCOMP INDEX)

Philippines: No Dovish Pivot in the Monetary Board's Latest Meeting