By Melissa Luz T. Lopez, March 26 2019; Business World
Image Credit to Reuters
ANZ BANKING GROUP’s research arm downgraded its growth forecast for the Philippines this year to a four-year low, amid delays in the passage of the budget.
In a report, ANZ Research said it now estimates economic growth of 6% for 2019, down from the 6.1% estimate issued in the last quarter.
This is broadly in line with forecast adjustments made by President Rodrigo R. Duterte’s economic team. The economic managers scaled down their growth target to 6-7% earlier this month, from 7-8% previously.
“In the Philippines, the delay in the approval of the 2019 budget notwithstanding, the government’s objective of stepping up infrastructure spending remains,” ANZ said in its quarterly report released yesterday.
“Combined with the earlier discussed possibility of sizeable cuts in the reserve requirement ratio (RRR) which may not be fully sterilised, prospects of renewed strength in credit growth and imports by implication cannot be ruled out.”
The P3.757-trillion national budget has been left unsigned for three months over a dispute between Congressional chambers about unauthorized modifications made to the document after bicameral session. Senate President Vicente C. Sotto III signed the bill yesterday “with reservations” which pave the way for its submission to Malacañang for review and signing into law.
Meanwhile, the inflation downtrend is expected to be sustained for the rest of the year, with ANZ Research now seeing the full-year indicator at 2.9%, marking a sharp drop from 2018’s 5.2%. This is expected to bode well for long-term Treasury and corporate bonds, and should likewise prod the Bangko Sentral ng Pilipinas (BSP) to reduce key rates.
“We now expect 75bps (basis points) of cuts in the policy rate in 2019, starting from May,” ANZ Research said.
The Monetary Board voted to keep rates unchanged in the 4.25-5.25% range last week, staying dovish even after new BSP Governor Benjamin E. Diokno said that he sees room to unwind last year’s series of rate increases worth 175bp.
However, ANZ Research said further policy cuts coupled with RRR reductions “will ultimately weigh on the peso.” The bank sees the currency trading at P53 against the dollar by year’s end. The peso has been trading at the P52 level in recent weeks.
Mr. Diokno has said that the 18% RRR may be reduced by one percentage point every quarter for the next four quarters, but BSP Deputy Governor Diwa C. Guinigundo said that the Monetary Board remains cautious about timing. A one percentage point cut in the reserves will release around P90 billion in additional liquidity.
“The latest reading for short-term time deposits, a proxy for the price of money, shows that we are now at the highest level since late 2008,” said Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila. “Given the scarcity of liquidity, market players are now paying a premium to secure it.”