S&P maintains rating while inflation eases

Cebu, PHILIPPINES, April 27, 2015 – Last Friday night (the 24th) saw the release of two pieces of news that largely reflected investor expectation.

BSP released first quarter inflation figures of 2.4%, well within the 2-4% target, and significantly lower than a year ago, at 4.1%. This is a continuation of the well calibrated supply and demand of food products and the lower cost of fuel and energy.

Domestic business and consumer confidence is positive, buttressing credit growth and an overall increase in consumption demand. With public spending set to increase throughout the year, the economy is continue to expand, and employment conditions will continue to improve.

Financial markets continue to consolidate with favorable conditions, strong corporate earnings, and an excellent fourth quarter GDP growth rate of 6.9% for 2014 supporting the strong upsurge thus far shown by the PSE. Investor sentiment is strongly optimistic, as the average P/E ratio of the PSEi indicates an overheated market. It is now hovering around 8000 points.

The BSP also maintained interest rates (4% borrowing/RRP and 6% lending/RP) in light of the benign inflation, and broad growth.

The BSP also forecast continued favorable conditions, with inflation expected to remain manageable, and on target, as the domestic economy continues to grow solidly.

“Meanwhile, the outlook for global economic growth as well as the shifts in foreign monetary policy, especially in major advanced economies, could be an important consideration in the coming months to the extent that they influence domestic inflation expectations and market sentiment”, the BSP also stated.

Also released on Friday night, Standard & Poor’s maintained it’s “BBB” rating for the Philippines, with a stable outlook.

This was attributed largely to the Philippines positive external position, which S&P projects will average a current account surplus of 4.7% annually until at least 2019, as well as its robust domestic consumption, the improving and young labor market, and a benign level of inflation set to continue.

The government has also been credited for fiscal discipline, which S&P projects will maintain a budget deficit of 1% of GDP until 2019. This is an improvement upon the 2% averaged in the previous five years, and a marked improvement upon the 4% average between 2000 and 2010.

BSP Governor Amando Tetangco Jr stated that the Philippines would be looking to capitalize on the improving fundamentals aiming for a credit rating of at least A- within the medium term,

“Fundamentals of the Philippines significantly improved over the last few years. With the trend staying positive, additional upgrades in the credit ratings over the medium-term should be achievable”

Finance Secretary Cesar Purisima agreed, stating,

“If compared with those of other emerging markets, fundamentals of the Philippines are one of the strongest. And with continually improving major credit indicators, including debt manageability, credit ratings ideally should adjust accordingly”

“We have managed to outperform even our own targets and expectations. Moving forward, we expect to sustain the reform momentum and to raise the bar even higher,” he added.

Moody’s rates the Philippine economy at Baa2, while Fitch has the least favorable grade, although it is still investment, of BBB-.


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