Bangko Sentral Ng Pilipinas Raised Its Policy Rate by 50bps to 4%

Indonesia’s real GDP growth rose sharply by 5.3% yoy in 2Q18, its fastest growth level since 4Q13, compared to 5.1% in 1Q18. In the first half of 2018, the country’s economic growth rose by 5.2% yoy, from 5.1% in 2H17. The strong expansion in 2Q18 was supported by a significant increase in public spending, rising by 5.3% yoy, compared to 2.7% in 1Q18, the strongest growth level since 2Q16. Growth in private consumption also trended higher to 5.1% yoy in 2Q18, from 4.9% in 1Q18. Going forward into 2H18, we believe the strong Indonesia’s real GDP growth will likely slow, as private consumption growth, which makes up 54.7% of GDP, may be weighed down by rising inflation, as well as the recent 100bps increase in the policy rate (7 Days reverse repo rate) by Bank Indonesia in a bid to shore up the weakening Rupiah against the US$.

On the monetary policy front, Bangko Sentral ng Pilipinas (BSP) hiked its overnight reverse repurchase rate by 50bps to 4.0% at its August monetary policy meeting. This follows BSP’s two previous 25bps policy rate hikes in May and June this year. On inflation, BSP noted that “the latest baseline forecasts have shifted higher over the policy horizon”. In July, inflation reached a five-year high of 5.7% yoy (5.2% in June), sitting above BSP’s 2018 target range of 2-4% for the fifth consecutive month. BSP noted that upside risks to inflation remains but steady domestic growth implies the economy can accommodate for more rate hikes.

In the Philippines, economic growth moderated to 6.0% yoy in 2Q18, following an expansion of 6.6% in 1Q18, below market expectations of 6.6% growth. In 1H18, the country’s GDP growth eased to 6.3% yoy compared to 6.8% in 2H17. The slowdown was attributed to private and public consumption, which contributes a total of 79.1% of GDP, which slowed to 5.6% yoy and 11.9% yoy, respectively in 2Q18 (5.7% and 13.6% in 1Q18). This was despite the improvement of total investment of 21.2% yoy in 2Q18 (from 8.8% in 1Q18). According to Socioeconomic Secretary Ernesto Pernia, slower economic growth was “partly due to policy decisions undertaken that are expected to promote sustainable and resilient development.”

Meanwhile, Bank of Thailand (BOT) kept its policy rate unchanged at 1.50% following a 6-1 vote at this week’s monetary policy meeting. The policy rate has been maintained since April 2015. Although inflation has quickened to 1.5% yoy in July (1.4% in June), BOT still anticipates inflation to remain stable and within its target of 1-4% in 2018. However, BOT did note that coreinflation, which remained steady at 0.8% yoy for the third consecutive month in July, may move higher due to the gradual build-up in demand-pull inflationary pressure. Unless inflation breaches the inflation target, we believe BOT will likely stand pat with its current policy rate.

Source: Affin Hwang Research - 10 Aug 2018