Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Tue, 24 Nov 2020, 4:57 PM


ASEAN Weekly - Bangko Sentral Ng Pilipinas (BSP) Holds Policy Rate at 4%

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BSP Likely to Keep Policy Rate Unchanged for the Rest of 2019

Bangko Sentral ng Pilipinas (BSP) in its monetary policy meeting in November kept its policy rate (overnight repurchase facility) unchanged at 4%, in line with market expectations. This was after its third 25bps rate cut in its previous meeting in September. So far in 2019, BSP has lowered its policy rate by a total of 75bps. Going forward, we believe BSP will likely hold rates for the rest of the year. The last MPC meeting will be on 12th December 2019. BSP Governor guided previously that BSP will not ease its monetary policy further in 2019 as “more than enough” has been done for the year. The country’s GDP growth in 3Q19 rose to 6.2% yoy from a four-year low of 5.5% in 2Q19 after easing for two consecutive quarters supported by higher government spending and higher household consumption. Going forward, growth is anticipated to be bolstered by stimulus from continued government spending and interest rate cuts done this year. Besides that, inflation has remained tepid having eased for the fifth consecutive month to 0.8% yoy from 0.9%. Year-to-date, headline inflation averaged 2.6% which is still within BSP’s inflation target range of 2-4% in 2019. In 2020, we expect any further rate cuts by BSP will be data dependent, especially on the country’s exports.

Separately, Singapore’s retail sales fell for the eighth consecutive month by 2.2% yoy in September from -4.1% in August. Excluding auto sales, retail sales also declined for the eighth straight month albeit at a slower pace of 0.3% yoy from -0.9% in August. Despite the persistent decline in retail sales, some support could arise from the healthy labour market. In 3Q19, total employment rose by 22.4k compared to 6.2k in the previous quarter, making this its strongest growth since 4Q14. Besides, the year-end holiday season may also provide some support for retail sales in the near term. However, going into 2020, retail sales may continue to be subdued amid a weak external economic backdrop. This was also guided by the Monetary Authority of Singapore (MAS) in its Macroeconomic Review published in October where it noted that as firms are becoming more cautious about hiring which could translate to lower wage growth in 2020.

In the ASEAN Investment Report 2019, the region managed to attract a record high inflow of FDIs in 2018. The amount of inflows rose for the third consecutive year from US$147bn in 2017 to US$155bn in 2018. As a percentage share of global FDI inflows, it increased for the third straight year from 9.5% in 2017 to 11.5% in 2018. Notably, FDI inflows reached all-time highs for Cambodia (US$3.1bn), Indonesia (US$22bn), Singapore (US$77.6bn) and Vietnam (US$15.5bn). By economic sectors, bulk of FDI inflows were concentrated in manufacturing (US$55bn) and financial services (US$42bn). The ASEAN Secretariat guided higher inflows of manufacturing FDI was partly due to the gradual shift of production capacity from China led by structural factors like higher labour costs in China as well trade tensions.

Source: Affin Hwang Research - 15 Nov 2019

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