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MANILA (PhlTodayUSA) National Treasurer Rosalia de Leon is confident that there will be adequate funding for government’s programs this year even if the approval of the proposed 2019 national budget is still pending.


This as the Bureau of the Treasury (BTr) has been offering the Treasury bond (T-bond) and Treasury bills (T-bills) through the tap facility and over-the-counter (OTC) due to high demand during the regular auctions.


“So we have really built a very strong cash position to be able to meet the requirements for the budget,” she said, noting that “we are, so far, on track on meeting the requirements at least for the domestic borrowings.”


De Leon said the government is also on-track with its foreign borrowing program after the issuance of US$1.5 billion US dollar-denominated 10-year global bond last January.


She also said that the government has appointed five Japanese banks for the planned issuance of the yen-denominated Samurai bond in the second half of this year, or about 12 months after last year’s issuance.


The tenor for this year’s planned Panda bond issuance would be about 3, 5 and 10-year and the amount would likely be about the yen equivalent of US$1 billion to US$1.5 billion.


“We still have to see the appetite of Japanese investors,” she said.


The issuance of the renminbi-denominated Panda bond is also part of the plan after the country’s initial foray in March last year.


“Right now we are nearly finished with all our approvals. We are just watching the market,” she said.


For this year’s planned issuance, de Leon said they are considering the issuance of around 300-500 million US dollar equivalent of renminbi.


“When we did the first Panda (bond) issue we are just looking at the onshore Chinese investors but they opened up the bond direct facility for Panda (bond) so that also allowed offshore investors to invest in the onshore market,” she said.


“We see (that) there would also be a lot of interest for offshore investors to invest in the onshore RMB market,” she added.


a De Leon said the government is considering to issue $300 million to $500 million worth of panda bonds by the second quarter, plus another $1 billion to $1.5 billion worth of samurai bonds in the second half of 2019.


The volume for the panda bond issuance, she said, is higher than the $230 million issued by the government during its last activity in the Chinese debt market in March last year.

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MANILA – The Philippines remained one of the fastest growing economies in Asia even after posting slightly slower growth at 6.1 percent in the third quarter, due to weaker agriculture output and ‘temporary’ decline in household spending over an inflation surge.


In a press briefing, Socioeconomic Planning Secretary Ernesto Pernia said an economic growth of at least 6 percent for 14 consecutive quarters suggests that the country is “now on a higher growth trajectory.”


He said the country’s third-quarter economic growth followed Vietnam’s 7 percent and China’s 6.5 percent, and way ahead of Indonesia's 5.2 percent.


Pernia said he is optimistic the domestic demand will shift to high gear again in the fourth quarter due to the holiday season, as the government continues addressing upward pressures on prices, especially on food.


He cited the issuance of Administrative Order No. 13 streamlining procedures covering the importation of food products.


“From the previous years, fourth-quarter consumption spending normally picks up quite a bit,” he noted.


Inflation remained at 6.7 percent in October 2018, but eased month-on-month by 0.3 percent since it peaked in August.


National Statistician and Philippine Statistics Authority (PSA) head Lisa Grace Bersales said “for Metro Manila, inflation is slowing down so we would expect this to encourage more household consumption expenditure at least for Metro Manila.”


Pernia, who is also the National Economic and Development Authority (NEDA) Director General, said the economy would have grown “easily between 6.5 to 7 percent” in July to September if inflation did not increase.


The PSA reported that services had the highest contribution to the overall growth in the third quarter with 4.1 percentage points, followed by industry with 2.1 percentage points.


The agriculture sector, however, pulled down the growth by -0.03 percentage points.


Pernia attributed the weakness of the agricultural sector to the highly-regulated trading regime, and several typhoons that delayed the planting decisions of the farmers.


“As we have been saying, the more robust solution is to reform the legal framework surrounding agricultural development and agricultural trade, especially on rice and sugar,” he said.


Pernia further said the economy needs to expand by at least 7 percent in the fourth quarter to achieve the low-end of the government’s target of 6.5 to 6.9 percent growth rate for 2018.


The GDP accelerated 6.2 percent in the second quarter this year, and 7.2 percent in third quarter in 2017.


“The recent resumption of activities in Boracay (Island) will boost services growth over the medium term,” he added. 

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WASHINGTON/MANILA – The Philippine and United States governments jointly announced that huge strides have been made towards resolving bilateral trade issues under the Trade and Investment Framework Agreement (TIFA), saying that both parties are committed to enhance economic ties.


This was contained in a joint statement issued by US Trade Representative Robert Lighthizer and Department of Trade and Industry (DTI) Secretary Ramon Lopez.


Ambassador to Washington Jose Manuel Romualdez immediately welcomed the Joint Statement announcing the progress made in addressing and resolving issues under the bilateral Trade and Investment Framework Agreement.

"This development is a manifestation of the strong economic partnership of our two countries," Romualdez said. 


"It stems from the discussions of President Rodrigo Duterte and President Donald Trump last November on how to further deepen our extensive economic relationship, including Philippine interest in a bilateral free trade agreement with the United States," he added.


In the joint statement, the United States Trade Representative (USTR) recognized the Philippines’ adherence to World Trade Organization (WTO) rules, ensuring WTO-consistent valuation on agricultural imports as well as the country’s commitment to fair trade by not launching policies that would restrict or prohibit the entry of US products to the Philippine market.


The USTR also noted that Philippine government’s effort to protect geographical indications (GI).


On the other hand, the Philippine government welcomed the resolution of the issues on market access for its agricultural products such as mango, young green coconuts, and carrageenan, as well as the inclusion of travel goods under the Generalized System of Preferences (GSP) granted by the US government to the Philippines.


Under the US GSP, some US$1.5 billion worth of Philippine exports to the US entered the market duty-free.


Moving forward, the two governments committed to strengthen bilateral economic relations.


“Both governments agree that enhanced bilateral engagement on trade under the TIFA should include work that yields benefits for agricultural producers, importers, exporters and consumers, and intend to work together in a number of areas,” the joint statement read.


Lighthizer and Lopez stated that the two countries will collaborate on the “development of cold chain requirements and best practices in the Philippines, taking into account international guidelines and codes of practice regarding food hygiene adopted by the Codex Alimentarius Commission”.


The trade officials said they will involve the private sector in improving the existing cold chain here, while the US government, subject to the availability of its resources, will provide technical assistance to enhance cold chain development and management in the Philippines.


“Both governments agree to continue technical dialogue and policy discussions on the National Retail Payments System (NRPS) and other measures related to electronic payment services, including domestic retail debit and credit electronic payment transactions,” noting the US government’s support to boost the e-commerce in the Philippines.


“Both governments agree to a continued dialogue on priority issues of interest to both countries, including for the Philippines, discussions on seeking relief from U.S. safeguard measures on solar cells and Section 232 tariffs on steel and aluminum,” it added.


The Philippines and the US likewise committed to collaborate for a work program under the Association of Southeast Asian Nations (ASEAN)-US TIFA for automotive standard issues.


Meanwhile, during the visit of US President Donald Trump in Manila for the ASEAN Summit, he welcomed the suggestion of the DTI for a free trade agreement (FTA) between the US and the Philippines and considered to explore FTA discussions.


In a text message on Tuesday, Lopez said following his joint statement with the USTR that both governments are planning to launch scoping discussions for an FTA.


However, the USTR has to notify the US Congress before it starts any formal negotiations for a free trade deal with any country.


In 2016, two-way trade between the Philippines and US reached US$27 billion, making the US one of the top trade partners of the Philippines. 

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MANILA – The Philippine government's economic managers have announced the revision of some economic targets after factoring-in the impact of mostly external factors.


 This the Bangko Sentral ng Pilipinas (BSP) released a report last week stating that inflation for the third quarter reached 6.2 percent.


In a briefing last week, Budget and Management Secretary Benjamin Diokno and Finance Secretary Carlos Dominguez said the gross domestic product (GDP) target for 2018 was cut to 6.5-6.9 percent from the original 7 to 8 percent, which is also the target until 2022.


In the first half this year, growth, as measured by GDP, it grew by 6.3 percent, with the first quarter figure at 6.6 percent and the second quarter at 6 percent.


The slowdown was traced partly to the government’s policy decisions like the six-month closure of Boracay Island, which decelerated the growth of the services sector; the imposition of excise tax on non-metallic and metallic minerals; and the stricter enforcement of aquaculture regulations in Laguna de Bay.


Aside from the GDP target, the average inflation assumption for 2018 was changed to 4.8-5.2 percent from 4 to 4.5. For 2019, the assumption is 3 to 4 percent.


The inflation target for 2018-20 is a range between 2 to 4 percent.


A Bank of Philippine Islands official and economist, meanwhile, said the country’s inflation is expected to fall below the 4-percent level by the second half of 2019 due to the expected normalization of oil prices after peaking this quarter.


Emilio Neri Jr., Vice President and lead economist at the Bank of the Philippine Islands (BPI), said oil prices are projected to fall from today’s US$70 a barrel to US$60 to US$65.


Neri said the country recorded an inflation rate he dubbed “temporary faster” this year, triggered by the 44-percent increase of average oil prices for the first nine months of the year.


“Practically, we had an oil price shock this year that happens only every 10 years,” he said on the sidelines of Euromoney Philippines Investment Forum.


“Last time we saw it (oil price shock) was in 2008 and the same thing happened, even a higher inflation. So we are quite confident that next year it’s not gonna be here anymore,” he added.


The country’s inflation rate hit a nine-year high to 6.7 percent in September 2018 from 6.4 percent in the previous month, due mainly to higher food prices caused by supply disruptions following the onslaught of Typhoon Ompong.


Neri said inflation will increase probably close to 7 percent in October as oil prices went up through the month.


Economic managers of the Duterte administration revised their inflation forecast for 2018 to 4.8 to 5.2 percent from 4 to 4.5 percent, taking into account the impact of mostly external factors. For 2019, the assumption is 3 to 4 percent. 


Average assumption for Dubai crude oil price was changed to US$70-80 per barrel for this year, US$75-85 per barrel for 2019, US$70-80 per barrel for 2020, and US$65-75 per barrel for 2021-22.


During the Development Budget Coordination Committee (DBCC) meeting last July, the average assumption for Dubai crude is US$55-70 per barrel for 2018 and US$50-65 per barrel for 2019-22.


The peso-US dollar rate is seen to average this year at P52.5-53 from P50-53 previously. For 2019-22, the foreign exchange assumption is between P52-55.


Export growth target for this year was cut from 9 percent to 2 percent and the 2019’s from 9 percent to 6 percent.


This, as growth of exports, remains moderate amid the big jumps in imports as account for higher requirement by the domestic economy.


Diokno, who is also the chair of the DBCC, said the change in the exports assumption was due to base effects in 2017.


Also changed are the assumptions for the 364-day Treasury bill (T-bill) this year to 4.4-4.6 and the 2019-22 to 4.5-5.5 percent. These were previously at 3 to 4.5 percent.


Finance Secretary Carlos Dominguez III, during the same briefing, said these changes were made to reflect current situation such as the impact of trade war, which was not seen a few months back.


“We are confident that the Philippine economy will weather these storms abroad but we are not complacent. We are taking very deliberate actions to address the issues that we are facing,” he said.


In a statement, economic managers said measures to address the issue on the demand-side include increasing household consumption with rice tariffication, social mitigating measures, and policy interventions in the education and labor sectors.


Other measures include encouraging the entry of additional investments by accelerating the infrastructure programs and boosting exports through the full implementation of the Export Development Plan.


Supply side-focused measures include improvement of the agriculture sector by cultivating high-value crops, investments in the capacity and technology of manufacturing, and innovation in and timely implementation of construction projects.


Dominguez said the economic slowdown in the second quarter of this year was partly due to the smaller contribution by the agriculture sector, thus, the identification of measures to boost the sector.


“Again, we are facing new realities. Everybody in the world is facing new realities and we are fortunate that our economy is strong enough and resilient enough to overcome these difficulties,” he said.


Dominguez said the country's banking sector continues to be strong, and this is among the reasons why the economy remains resilient.


“We have a very high foreign exchange reserves. They are almost seven months of imports and we have an administration that is closely coordinating their fiscal policy with monetary policy so these issues will be addressed,” he added. 


Two weeks agao, Department of Trade and Industry (DTI) Secretary Ramon Lopez said the pace of increase in prices of goods and services month-on-month has already slowed down.


Although year-on-year inflation for September rose to 6.7 percent this 2018 from 3 percent in 2017, inflation last month grew by 0.3 percentage points from 6.4 percent in August of this year.


The 0.3-percentage point month-on-month increase in inflation in September was lower than the 0.7-percentage point hike from July and August, the 0.5-percentage point increment from June to July, and the 0.6-percentage point rise in inflation from May to June, based on data from the Philippine Statistics Authority (PSA).


“How we should look at this is this way: We all know that the inflation this year is higher than last year because of one common factor -- because of that high price of oil,” Lopez told reporters.


“What we should watch out for is the month-on-month. Is it improving or worsening? This month we are seeing is a 0.3 [percentage points] change,” he added.


Price index on transport, which is directly affected by rising oil prices, accelerated to 8 percent in September, PSA data showed.


Lopez noted that the insufficient supply of agricultural products also pumped the price pressures last month, particularly on food and non-alcoholic beverages index.


This was aggravated by Typhoon Ompong that brought about damage to agriculture, including facilities and infrastructure, to Php 26.8 billion.


The DTI chief, however, pointed out that the government does not turn a blind eye to the rising inflation.

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BANGKO SENTRAL Gov. Nestor Espenilla Jr. and Deputy Governor Diwa Gunigundo discuss measures against inflation.


MANILA – The Bangko Sentral ng Pilipinas (BSP) has affirmed its readiness to “take strong immediate action using the full range of instruments in its toolkit” to address threats generated by higher-than-expected inflation, as demonstrated by its 100 basis points increase in key rates earlier this year.


This was stressed by BSP Governor Nestor A. Espenilla Jr. last week, as markets continued to be affected by the surge in the rate of price increases to a multiyear high of 6.4 percent in August 2018.


“The follow-through actions will also address other threats to higher inflation, such as excessive exchange rate volatility not consistent with underlying macroeconomic fundamentals in order to ensure that inflation returns to its 2 (percent) to 4 percent target over the policy horizon,” he said.


He also said that the central bank will re-activate tolls like the Currency Risk Protection Program (CRPP), “which will be made available to eligible corporates with foreign exchange obligations based on more liberalized rules.”


“In addition, the BSP will take all actions necessary to deal with speculative activity by market participants,” he added.


On Friday, the central bank, in a statement, said it will re-activate the CRPP, which was introduced in December 1997, to be made available to eligible corporations through commercial banks. It was explained that the facility is a “non-deliverable forward hedging facility, which is aimed at alleviating demand pressures in the foreign exchange spot market from borrowers seeking to hedge their future foreign exchange exposures.”


“Under the facility, parties agree that, on maturity of the forward contract, only the net difference between the contracted forward rate and the spot rate shall be settled in pesos,” the central bank said.


BSP Deputy Governor Diwa Guinigundo, in a briefing Friday, said the facility will address concerns of corporates with outstanding loans. He explained that businesses normally buy foreign exchange on spot for their future requirements.


While this practice protects corporates if the Peso, for one, depreciates in the future, this increases volatility in the foreign exchange market, he said. “But if you have this CRPP, then your corporate players will have the assurance that they will be protected regardless of the fluctuations in the foreign exchange market,” he said.


Guinigundo stressed that the current volatility in the foreign exchange market is due to the impact of external developments, such as the trade tensions between the US and China and the currency crisis in Turkey and Argentina. “So I think by these measures of the BSP, the announced measures of the BSP, we should be able to address the concerns of the foreign exchange market,” he said.


“The BSP will make sure that we would also be able to deal with speculative activity in the market,” he added.


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MANILA – Business sentiment in the third quarter of 2018 slid to 30.1 percent, the lowest since the first quarter of 2010, from quarter-ago’s 39.3 percent due to inflation concerns, both domestic and global.


However, a Bangko Sentral ng Pilipinas (BSP) official said the outlook is brighter in the last quarter of the year.


Aside from higher commodity prices, respondents of the Business Expectations Survey (BES) for the third quarter this year also cited the impact of the first tax reform package or the Tax Reform for Acceleration and Inclusion (TRAIN), increase in cost and lack of supply of raw materials, interruption of business activities, and lower crop production due to the rainy season, weakening peso and stiffer competition as reasons for the business sentiment.


In a briefing last week Thursday, Redentor Paolo Alegre Jr., head of the BSP's Department of Economic Statistics (DES), however, said outlook for the fourth quarter is better after the confidence index rose to 42.6 percent from 40.4 percent in the first quarter. “This suggests that growth may be sustained in the last quarter of 2018,” the report said.


Respondents attributed the brighter outlook next quarter to uptick in consumer demand due to the holidays, expansion of businesses and new products, continued rollout of the government’s infrastructure program, and opening of fishing operations in October.


The central bank report said the positive outlook for next quarter was also attributed to expectations of more favorable macroeconomic conditions, sustained foreign investment inflows, and robust inflows of money being sent home by Overseas Filipino Workers (OFWs).


BES’ results have about 0.67 percent correlation to domestic output.


BSP Deputy Governor Diwa Guinigundo, during the same briefing, said that although results of the BES showed some downtrend, the factors surrounding it should be considered.


He said seasonal factors, such as the interruption of business activities and lower crop production, along with weaker consumer demand due to the impact of the start of a new school year, should be considered when looking at the third quarter BES. “This is a signal to the business sector that spending may not necessarily be directed towards the products and services that they produce,” he said.


Guinigundo said expectations of the business community is always on the high side but also noted that despite this, monetary officials need to study the results of the survey to be able to show the public that the central bank “will continue to be vigilant.“


The survey results also showed that the respondents expect the Peso to depreciate against the US dollar and the interest and inflation rates to go up. 

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MAKATI CITY – The peso plunged to a new 13-year low against the US dollar Tuesday, Sept. 11, and in the days that followed amid the country’s widening trade deficit and exacerbated by the current global trade war and other external developments.


The peso lost six centavos to close at 53.94 a dollar, down from 53.88 Monday. It was the local currency’s weakest finish in almost 13 years, or since it settled at 53.985 on Dec. 7, 2005. 


Last week's trading came to a close, seeing a recovery in the Philippine peso, but profit-taking got the better of the Philippine Stock Exchange index (PSEi) as investors cashed in on Thursday’s gains.


The local currency ended the week at 53.97 from 54.07 a day ago, which Landbank market economist Guian Angelo S. Dumalagan traced to sentiments that allow the local unit to “find support at 54.00 after falling to that level this week.”


It opened the day at 54.02, sideways from the 53.99 a day ago, and traded between 53.965 and 54.06, resulting in an average of 54.011.


Volume reached US$660.15, a little more than the US$658.3 million in the previous session.


Dumalagan forecasts the currency pair to trade between 53.70 and 54.20 next week.


He said he remains optimistic that the peso can still improve in the coming months and end the year at a better 53-level if inflation peaks and the Bangko Sentral ng Pilipinas (BSP) further hikes key policy rates.


The BSP has increased its key rates by a total of 100 basis points as inflation sustains its rise.


In the first eight months this year, inflation averaged at 4.8 percent, higher than the government’s 2 percent to 4 percent target band until 2020.


Last August, the rate of price increases rose to a multiyear high of 6.4 percent from month-ago’s 5.7 percent due to faster increases in the prices of fish, rice, meat and vegetables because of supply issues.


With inflation still high, the central bank’s policy-making Monetary Board (MB) is widely expected to hike rates further during the Board’s rate-setting meet on September 27.


On the other hand, PSEi contracted 1.39 percent, or 104.22 points, to 7,413.15 points as risk-off sentiment remains high.


“Philippine shares succumbed to profit-taking after yesterday’s (Thursday’s) last minute buy-up, and also with little market making developments,” Dumalagan said in a market report.


As expected, the Bank of England (BOE) and the European Central Bank (ECB) kept rates steady.


To date, BOE’s interest rate is at 0.75 percent while ECB’s primary interest rate is at -0.4 percent and the main refinancing rate is at zero percent.


BOE, meanwhile, hiked its growth projection for the country this 2018 to 0.5 percent from 0.4 percent after noting the stronger consumer spending.


With these, PSEi’s performance was mirrored by all the other indices, with the broader All Shares down by 1.02 percent, or 47.01 points, to 4,555.30 points.


Property registered the highest drop at 1.94 percent and was followed by Industrial, 1.57 percent; Holding Firms, 1.41 percent; Services, 0.63 percent; Mining and Oil, 0.58 percent; and Financials, 0.57 percent.


Volume was thin at 715.86 million shares amounting to P6 billion.


Losers continue to surpass gainers at 115 to 67 while 46 shares were unchanged. 


The Philippine peso has been moving in tandem with Asian currencies amid severe exchange rate volatility spawned by the global trade war, the Turkey-Argentina crisis and the Fed monetary normalization,” Undersecretary Gil Beltran said in an economic bulletin.


The peso ended Tuesday's session sideways against the US dollar despite the strong pull towards the 54-level but the Philippine Stock Exchange index (PSEi) declined for the fifth straight day on trade war concerns overseas and rise of domestic inflation rate.


Volume of trade reached US$434.1 million, lower than the US$434.9 million a day ago.


A trader said worries on rising domestic inflation continue to affect the local currency.


Another factor is the trade concerns between the US and China following the recent announcement that the US might slap more tariff on Chinese goods.


On the other hand, the main equities gauge fell 1.03 percent, or 78.14 points, to 7,518.01.


BDO chief strategist Jonathan Ravelas said bargain hunting was up “as there will always be markets and companies that will do better than others amid the ongoing US-China trade war and rising inflation environment.” He, however, said that investors remain cautious given the inflation uptick, which rose to 6.4 percent last August.


“Market is awaiting any leads to further rein in inflation like non-monetary measures thereof,” he said.


Beltran said year-to-date, the peso depreciated 7.39 percent, ranking third among 12 currencies of the fastest-growing Asian countries. The most depreciated currencies were Indian rupee, which dropped 11.7 percent, and Indonesian rupiah which declined 9 percent.


Other Asian currencies, which depreciated this year, were the Chinese yuan (down 4.97 percent), Korean won (down 4.46 percent) and Taiwan dollar (3.46 percent).


Beltran said that since July 31, emerging markets were the target of adverse hot money movements as contagion spread from problems in Turkey and Argentina.  Beltran said the Philippine peso depreciated by 0.82 percent since then, ranking fifth among eight Asian countries whose currencies depreciated.


He said the coefficient of variation showed that the volatility level of the Philippine peso (at 1.91 percent) year-to-date reflected the average for all 12 Asian countries. Volatility ranged from 0.14 percent for Hong Kong to 3.13 percent of China.


Beltran remained optimistic despite these developments, saying, “Maintaining good macroeconomic policies, thru manageable fiscal and BOP [balance of payments] balances, and adopting economic reforms thru tax reforms are still the best way to sustain growth and investment and, at the same time, steel the economy from external economic shocks.”


Beltran said contributing to the weakness of the peso was the Federal Reserve monetary normalization that propped up the dollar against other currencies.

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MANILA – The economy expanded by 6 percent in the second quarter of 2018, making the Philippines still one of the best-performing economies in Asia.


 Socioeconomic Planning Secretary Ernesto Pernia said the April to June growth rate is “less than what we had hoped for” behind Vietnam’s 6.8 percent and China at 6.7 percent growth.


Pernia remains hopeful about achieving at least the low-end of the 7 to 8-percent growth target range for the year with the implementation of policies towards attracting more investments, after the economy accelerated 6 percent in the second quarter.


Pernia said the Philippines remained one of the best-performing economies in Asia after Vietnam at 6.8 percent growth and China at 6.7 percent growth, even as the second-quarter growth rate is “less than what we had hoped for.”


Pernia attributed the slowdown partly to policy decisions undertaken that are expected to promote sustainable and resilient development.


He was referring to the temporary closure of Boracay Island from April to October 2018, which partly made a dent on the economy and growth in exports of services slowing to 9.6 percent in the second quarter from 16.4 percent in first quarter.


Pernia said the mining and quarrying sector also showed a lackluster performance amid the closure of several mining pits and the excise tax on non-metallic and metallic minerals.


“But, I emphasize, all measures should ensure sustainable and long-run growth for the economy. These policy decisions were prudent and judicious,” he said.


The gross domestic product (GDP) growth for the first six months of the year reached 6.3 percent.

The economy grew 6.6 percent in January to March.


“This implies that the Philippine economy would have to expand by at least 7.7 percent in the second semester to attain the low-end of the 7.0 to 8.0 percent growth for 2018,” Pernia said.


Meanwhile, an economist from IHS Markit said rising world crude prices and the Bangko Sentral ng Pilipinas' (BSP) tightening of monetary policy are slowing down the country’s economic growth.


IHS Markit Asia Pacific Chief Economist Rajiv Biswas made the statement, following the release of the gross domestic product (GDP) growth figure for the second quarter of the year at 6 percent.


“With the GDP growth rate in Q2 2018 moderating to 6 percent, the lowest year-on-year pace of growth since Q3 2015, the Philippines government and central bank face a more challenging economic outlook of softening growth momentum and rising inflation,” Biswas said in an e-mail.


“A key risk to the near-term outlook is from the risk of further rises in world oil prices, which could push inflation higher and force more BSP rate hikes during H2 2018 and in 2019,” he added.


Early this week, government data showed that inflation rate hit its five-year high jumping to 5.7 percent in July.


The higher global oil prices coupled with the weaker peso contributed to price pressures in the domestic market.


With the rising price pressure, it was expected for the BSP to raise key policy rates as much as 100 basis points for the second half of 2018.


Pernia pointed out that the immediate approval of the 11th Regular Foreign Investment Negative List (FINL) should be prioritized to reduce foreign investment restrictions.


“Together with the proper implementation of the Ease of Doing Business Act, this will surely encourage more investments from both foreign and domestic sources,” he noted.


Pernia said the Philippine economy would have to expand by at least 7.7 percent in the second semester to attain the low-end of the 7.0 to 8.0 percent for 2018.


The country’s gross domestic product (GDP) expanded by 6.3 percent in the first half of the year. It was pulled up by the 6.6 percent growth in January to March.


Pernia is also hopeful that the timely implementation of the “Build, Build, Build” program bodes well with the construction industry, and is seen to boost not only public construction but private builders as well.


In the services sector, the immediate facilitation of the possible entry of a third player in the telecommunications industry will enhance the efficiency of communications, and support the growth of small business, particularly retail trade, he said.


“Further, the resumption of tourism activities in Boracay Island by October gives us good reason to be bullish about prospects for tourism and other service sectors in the fourth quarter,” he added.


Pernia attributed the slower second-quarter economic growth to policy decisions undertaken that are expected to promote sustainable and resilient development.


He said the temporary closure of Boracay Island from April to October 2018 partly made a dent on the economy with growth in exports of services slowing to 9.6 percent in the second quarter from 16.4 percent in first quarter.


He pointed out that the mining and quarrying sector declined 10.9 percent with the closure of several mining pits and the excise tax on non-metallic and metallic minerals.


“Moreover, the stricter enforcement of regulations on aquaculture producers at Laguna Lake resulted in the drop of freshwater fish catch,” he said.


Pernia said industry growth is slower at 6.3 percent in the second quarter, as manufacturing softened on the back of strict regulations of controlled chemical and chemical products, coupled with the high rates charged by shipping companies for transporting chemicals.


He also noted the almost stagnant output of the agriculture sector, supporting their premise that the main reason behind the country’s high inflation is the gross deficiency in the domestic production of food, which was not augmented by imported goods, especially rice.


Palay, corn, sugarcane and mango harvests for the quarter were dismal. Coconut including copra, livestock and poultry production all reported weak output.


“Rice tariffication is a crucial measure to address food supply issues and their consequent impact on inflation. It will reduce the policy uncertainty in rice trade, and hopefully, encourage more productive investments in the sector,” he said.


Meanwhile, the Philippine Statistics Authority (PSA) reported that services recorded the fastest growth at 6.6 percent in the second quarter of 2018.


Industry followed with a growth of 6.3 percent, and agriculture with a growth of 0.2 percent.


The PSA said manufacturing, trade and construction were the main drivers of growth for the quarter.

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The Bangko Sentral ng Pilipinas has raised its benchmark rate by 50 basis points on August 9, after inflation breached its target for 5 straight months.


The highest increase in 10 years brought the overnight borrowing rate to 4 percent. It was also the third straight hike this year. The BSP earlier raised rates twice by 25-basis point increments.


"The BSP reiterates its strong commitment and readiness to take all policy actions to address the threat of high inflation and deliver on its primary mandate of price stability," BSP Governor Nestor Espenilla Jr. said. 


Espenilla reiterated the regulator's "firm commitment" to meet its 2 to 4 percent inflation target for the year.


Consumer prices rose 5.7 percent in July, exceeding the BSP's goal for the fifth straight month and quickening for the seventh straight month. It was also the highest in data since January 2013.


President Rodrigo Duterte's economic managers have outlined several measures to cushion the impact of inflation, including taxing rice imports to help bring down the price of the staple and cash subsidies for the poor.


Former President Gloria Macapagal-Arroyo, who is now Speaker of the House of Representatives, last month asked Duterte to "do something" about rising prices and had met with his economic team.


"Should price pressures continue to rise through the third quarter, the risk would be of further tightening at the September 27 meeting... and another 25 bp hike in the fourth quarter," Benjamin Shatil, ASEAN economist at JPMorgan, said in a note.


Standard Chartered's Asia economist Chidu Narayanan meanwhile said today's rate hike is likely the last for this year.


"I don't think they (BSP) will be hiking again after today's meeting because, partly, I think inflation would top out in August. I mentioned 6 percent," Narayanan said in an interview with ANC's Market Edge. 


Narayanan said he expects inflation to go down in the 4th quarter and to average 4.4 percent in 2019.

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MAKATI CITY – Citing sustained rise of inflation and credit growth, Fitch Solutions forecasts an additional 25 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates before yearend.


In a research note, the Fitch Group unit contends that while the implementation of tax reforms since January 2018 is a major contributor to price pressures, it considers robust consumer demand due to strong credit growth as the main driver of inflation, Joanne Villanueva of PNA reported.


“This is evident from the fact that core inflation has also been on the uptrend,” it said.


In a related development, an economist of ING Bank Manila believes the additional hike in Bangko Sentral ng Pilipinas’ (BSP) key rates effective August 10, would help buoy the peso and address the impact of its weakness on domestic inflation.


Last week, the BSP’s policy-making Monetary Board (MB) hiked the central bank’s key rates by 50 basis points on expectations of elevated inflation rate levels until next year. The rate increase this week is on top of the 25 basis points hike each last May and June.


“The move also support(s) PHP which has contributed to rising inflation. We support BSP’s view that the economy can absorb monetary tightening,” Joey Cuyegkeng said.


“The aggressive BSP policy tightening not only addresses BSP’s mandate to moderate inflation but also moderate the imbalance generated by private sector growth and enhanced government spending,” Cuyegkeng said.


“We believe that this is not the end of BSP’s tightening as the immediate objective to anchor inflation expectations would need further action since inflation has yet to peak and would remain elevated for the rest of the year and early 2019,” he added. 


The peso is currently trading at the 53-level to the greenback and some economists consider this to be another factor for the sustained rise of the rate of price increases.


As of last July, inflation averaged at 4.5 percent, higher than the government’s 2 percent to 4 percent target until 2020.


Last July alone, inflation surged to a multiyear high of 5.7 percent from month-ago’s 5.2 percent due to faster inflation of the food and non-alcoholic beverages index.


Authorities have traced the sustained rise of this particular index to tighter supply of fish and rice, among others.


Cuyegkeng also noted that with domestic demand remaining robust, imports have shadowed exports, resulting in trade imbalance and affecting the overall growth of the domestic economy.


In the first seven months of the year, inflation surpassed the government’s two to four percent target until 2020 after it averaged at 4.5 percent.


Last July alone, headline inflation rose to multiyear high of 5.7 percent from month-ago’s 5.2 percent due to big jump of inflation of the food and non-alcoholic beverages index.


During the same month, core inflation, which excludes some volatile food and oil items, registered at 4.5 percent from the previous month’s 4.3 percent, resulting to an average of 3.5 percent.


The report said domestic inflation risks are aggravated by higher inflation expectations and rising global risk aversion, all of which also contribute to the weakness of the Philippine peso.


In a bid to meet its mandate of ensuring price stability and to support economic growth the Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) on Thursday hiked anew the central bank’s key rate by 50 basis points.


The rate uptick is on top of the total of 50 basis points increase, at 25 basis points each, last May and June.


To date, rate of the BSP’s overnight reverse repurchase (RRP) facility is four percent, the repurchase facility rate is 4.5 percent and the deposit rate is 3.5 percent.


Philippine monetary authorities’ decision to increase key rates was made to address continued rise of inflation and address any second round effects.


“While we recognize that the BSP can intervene in the spot market to help stabilize the currency, negative real interest rates and a tightening US Fed suggest to us that further interest rate hikes will likely be needed over the coming quarters to safeguard macroeconomic stability, and this is likely to come at the expense of growth,” the research said.


In the second quarter of the year, the domestic economy grew by six percent, slower than the 6.6 percent in the previous quarter.


With headwinds coming from rising inflation, tighter monetary policy and slower growth, Fitch Solutions cut its 2018 growth forecast for the Philippines to 6.3 percent from 6.5 percent earlier.


The research noted that the economy’s second quarter performance this year was driven by stronger government consumption, fixed capital formation and exports.


However, output of these factors were countered by the deceleration of private consumption and continued rise of imports, with the latter due to rising domestic demand.


The study said the government’s infrastructure program has resulted to increase in stock of durable equipment and faster growth of construction but it “question(s) the “sustainability of the government’s aggressive move, in the absence of improvements to the business environment and larger involvement of the private sector.” 

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