3 August 2018
Asia week ahead: Philippines rate hike in view

Australia, New Zealand, Thailand and the Philippines hold central bank meetings next week but the Philippines will be the one to watch. Meanwhile, China’s July trade data should provide a glimpse into the trade war impact 

A double-barrel tightening by Philippines' central bank

Central banks in Australia, New Zealand, Thailand and the Philippines all hold their monetary policy meetings next week, but a broad consensus forecast for no change in rates by the first three, make these non-events.

We think the Philippines central bank meeting next Thursday (9 August) will be the most significant. Coming in just ahead of the meeting will be the July inflation figures and GDP for the second quarter, which are likely to play a key role in the decision.

Rising inflation and the weak currency were triggers for the two 25 basis point rate hikes in May and June. Of these, the second factor has somewhat faded recently; not only has the peso stabilised in sync with emerging FX, but the 0.4% appreciation against the US dollar over the last month was also the most among Asian currencies. However, rising inflation remains a tailwind for higher rates, and that's getting even stronger.

Inflation surged past the central bank’s 4.3 - 5.1% forecast range to 5.2% year-on-year in June. Our Philippines economist, Joey Cuyegkeng, sees it jumping further to 5.4% in July and thinks it's unlikely to stop there. Higher minimum wages, transport fares, elevated fuel prices, income tax reforms, and the weaker currency are all likely to sustain the upward trend for the remainder of the year. And in our view, this requires more aggressive policy action. 

We forecast steady, strong GDP growth of 6.7% YoY in the second-quarter - barely moving from 6.8% in 1Q and we think this provides scope for a 50 basis point hike rather than the standard 25 basis point move.

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Good MornING Asia - 3 August 2018

Australia, New Zealand, Thailand and the Philippines have their central bank meetings next week but the Philippines will be the one we'll be keeping an eye out for. Meanwhile, China’s July trade data should also provide a glimpse of the trade war impact 

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