The Philippine Statistics Authority (PSA) [link] reported that December inflation cooled to 3.9% y/y. While this monthly result is within the government’s target range of 2% to 4%, the average inflation for the full year was significantly outside of that target band at 6%. The PSA said that the lower inflation rate in December was driven by slower price increases in housing and essential utilities like water, fuel, and power. According to the National Economic and Development Authority (NEDA), the increase in the price of rice was still the “most significant contributor” to the December inflation result. NEDA said that additional short-term relief measures will be considered to complement its medium-term goal of boosting agricultural productivity.
MB BOTTOM-LINE: The giddy calls for a Q1 US Federal Reserve pivot from tightening (raising rates) to loosening (cutting rates) have given way to the post-New Year’s hangover reality that rates there are likely to remain level for some time before coming back down, and I hear a similar hesitancy from the BSP and our country’s economic managers to take their knee off of inflation’s neck too quickly. That said, the BSP’s Governor, Eli Remolona, said that it had been “intervening a bit too much” in the foreign exchange markets to support the Philippine Peso’s value relative to the US Dollar, and signaled that the BSP would move toward a “less managed” framework for foreign exchange interventions. Mr. Remolona had previously committed to defending the ?57:$1 “psychological” line, but now appears open to allowing the exchange rate to drift a bit further afield. It’s worth watching for companies that still carry a heavy amount of debt denominated in US Dollars.
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