The economy according to RCBC

After I gave you the views of the BSP and BPI on the Philippine economy in earlier columns, I have to give you another bank’s perspective after I attended their lunch briefing last week. RCBC is among the top ten banks in the country but has a slightly different clientele than the top 3 banks. It has more trader clients in the medium-size category and quite heavy in the Japanese businesses. It also got in the news last year due to the million-dollar Bangladesh Central Bank hacking and remittance scandal that ended in an RCBC branch. In fact, this issue was asked in the open forum and the answer was that RCBC and the BSP had conducted the investigation, and RCBC has done all the corrective measures and was fined P1 billion, while the Bangladesh Central Bank has not disclosed any investigation on their part.

According to RCBC Senior Vice President Steven Reyes, the global growth scenario of the major world economies are synchronized, so the global markets are upbeat and no major shocks seem to be forthcoming. While there are political risks brewing in the horizon, such as the Korean problem, Eurozone fragmentation, and Trump and Duterte experiences, these are surmountable. The other talking points such as structural and transitory inflation, China’s shift to a consumer economy, technological paradigm shift in IT and clean energy, and limitation on Balance Sheet expansion, are more positive for the World and Philippine economy.

RCBC expects the GDP to grow in the 6.5 percent to 7 percent range in 2018 with a mild pick up in the inflation rate. BSP will likely raise interest rates two times this year to contain inflation brought about by the tax reform laws (TRAIN). This will bring up bank lending rates up by 1 percent to 2 percent. The massive importation due to the infrastructure program of the government will not be covered by the exports, the OFW remittance and the BPO earnings, so that the peso-dollar exchange rate may inch up to a high of P53. The current account deficit, (FX outflow less FX inflow), may reach 5 percent of GDP but the $81 billion international reserves may be able to cover the shortfalls.

In the fiscal front, from the massive budget deficits during the Arroyo years, the lower budget deficits and rationalized borrowings of the Aquino years, the Duterte years will be a deliberate budget deficit of 4 percent of GDP to fund the infrastructure projects. This is envisioned to lead to a higher growth rate as the economy becomes more productive and efficient with the removal of the bottlenecks. This has to be augmented with higher government revenues from taxes and custom duties as there are other populist programs of the government that have to be funded.

For the investing clients, Mr. Steven Reyes advised that investors should stay short term in their fixed income investments to take advantage of the expected rise in the Bond yields as government and private borrowings increase. In fact, RCBC is underwriting Banco National Paribas (BNP) Global Peso Notes whose rates will be 1 percent higher than the current issues in the market. He also suggested that diversification would still be the name of the game in terms of currencies, products, and strategies.

I get to attend these economic briefings because of my job as an investment banker, a FINEX member, a columnist, and a client of these banks. I am also a believer in financial education for all, to warn and alarm people of financial scams which victimize the uninformed.