MANILA, Philippines - The Philippines remains in a sweet spot, posting high growth amid a low inflation environment, the Australia and New Zealand Bank (ANZ Bank) said in a report.
“This highlights our view that the economy has shifted to a structurally higher growth path, increasing its absorption capacity,” ANZ Bank said.
With a third rating upgrade from Moody’s Investors Service, the Philippines is now rated investment grade by all major agencies.
The recent revision upwards by the Asian Development Bank of its growth outlook for the Philippine economy, plus the downward revision of the rest of its Southeast Asian neighbors only strengthens its “sweet” position.
It added that the Bangko Sentral ng Pilipinas (BSP) would adopt a tightening bias by the second semester of 2014.
Assuming a monetary policy transmission lag of 15-24 months, ANZ Bank said the BSP has room to assess whether restricting the client-directed investment management accounts (IMA) from the special deposit accounts (SDAs) has translated to a significant increase in credit to productive sectors of the economy.
Overall credit has remained strong expanding 13 percent year-on-year in August. Loans to manufacturing picked up 10.1 percent, pointing to growth in production.
The earlier assumption maintains that the BSP would hold monetary policy rates but the central bank would slightly increase it by 25 basis points by the second semester of 2014.
“The (Philippine) economy has shifted to a structurally higher growth path,” the bank reiterated.
ANZ Bank sees this year’s inflation at 2.7 percent and at 3.6 percent in 2014.
Despite posting an average 7.6-percent growth rate in gross domestic product (GDP) in the first semester of the year, headline inflation has been lower than the BSP’s target range in the last six months.
The BSP targets headline inflation to post a full-year average of three to five percent in the 2013-2014 policy horizon, and two to four percent for the 2015-2016 policy horizon.