Philippine inflation rate has peaked at 4.9% considering that rice harvests start in September and 500,000 metric tons (MT) of new imports begin to arrive in October, according to FMIC & UA&P Capital Markets Research.
The lifting of truck ban in Manila has eased the flow of food items to Metro Manila and other parts of the country, while crude oil prices are likely to continue their downward trend until the first half of 2015.
“The central bank is likely to have a pause as consistently softer inflation figures at 4.2% by year-end starting September. Besides, with the previous BSP measures clamping down on liquidity, money supply is likely to slide to a single-digit growth by November,” said FMIC & UA&P.
FMIC & UA&P expect another round of monetary policy tightening moves before the end of the year.
“We continue to see the peso having difficulty coping with the strength of the US dollar. The fundamentals and the technical indicators both show a depreciation bias for the rest of the year, with brief respites provided by OFW Christmas-related remittances.”
FMIC & UA&P also expect a rally in peso-denominated bonds amidst stronger Philippine economic performance, falling domestic inflation rates, and the continuing appeal of US Treasuries given its economy’s robust growth.
Faster second half economic growth with renewed government spending and stronger exports, should infuse greater optimism in the local financial markets, said FMIC & UA&P.
“We do not see much pressure from US T-bond rates rising in the fourth quarter. At best, 10-year T-bonds are forecasted to hit 2.75% or some 40 basis points from the lowest levels reached the second quarter.”
FMIC & UA&P also expect a rush of corporate bond issuances in the fourth quarter as the backlog has been building up due to the need to satisfy regulatory requirements.