Economic Highlights (Philippines) – 02/05/2014

Robust Expansion Of Money Supply And Credit Growth In March

u  Despite easing slightly in March, broad money supply (M3) expanded by 34.8% y-o-y in March, from +36.1% y-o-y in February and compared with a 10-year fastest pace of +37.3% in January. The moderation in March was led by domestic claims. These were, however, partly mitigated by the acceleration in net foreign assets.

u  On the contrary, bank lending, rose at a fastest pace in almost two years to 17.6% y-o-y in March, from +17.1% in the previous month. This was led by loans to businesses, on the back of increased lending to the real estate, renting & business services, electricity, gas & water, wholesale & retail trade, wholesale & retail trade, manufacturing and financial intermediation, while loans to households also picked up due to the expansion of auto loans and other types of loans such as personal and salary loans.

u  Going forward, upside prices pressures may result from additional petitions for adjustments in electricity rates and from the impact of sustained growth in liquidity. As a result, we expect inflation to pick up in 2014, on the back of a strengthening consumer spending and robust money supply and credit creation.. As a whole, we expect a 25-50 basis points hike in the benchmark overnight rate to 4.00% in 2H 2014, as the central bank is compelled to stem excessive monetary growth.

u  Separately, the Philippines’ gross international reserves slipped into a decline of USD0.9bn to USD79.6bn in March. At the current level, the Philippine’s gross international reserves is sufficient to finance 11.0 months of imports and cover 7.0 times the short-term external debt of the nation. Although the Philippine peso is still vulnerable to financial market volatility as a result of a global swing in risk appetite, it is, however, underpinned by its strong current account position and adequate international reserves. As a whole, the peso is projected to strengthen to PHP43.80/USD as at end-2014, in our view.

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.