Bangko Sentral seen to cut rates in Q3

AMERICAN bank JP Morgan Chase sees the Bangko Sentral ng Pilipinas (BSP) slashing key interest rates by a
quarter-percentage-point in the third quarter of this year, preempting any prospective monetary tightening by the
US Federal Reserve Board.
In a research note issued late last weekafter the BSP kept key interest rates unchanged at its fourth monetary
policy-setting for 2015, JP Morgans Singapore-based economist for Asia-Pacific Sin Ben Ong said the bank
was still expecting a 25-basis point rate cut in the third quarter, ahead of the US Fed normalization.
This assumes that domestic considerations around inflation, sterilization costs will trump concerns over
external stability, Ong said. This forecast will change if the BSP more explicitly raises concerns about
disruptions to markets from the Fed liftoff.
Global financial markets are expecting the US Fed to raise interest rates by September this year at the earliest,
reversing the aggressive monetary stimulus sanctioned after the 2008-2009 US-epicentered financial crisis.
At the local market, the BSP last week maintained its overnight borrowing rate at 4 percent and lending rate at 6
percent. The rate on the special deposit account (SDA), a monetary tool meant to siphon off excess liquidity
from the market, was likewise kept at 2.5 percent while the reserve requirement ratio was maintained at 20
percent.
This was anticipated by most, including us, Ong said.
Ong noted that the decision to keep rates on hold was made in the context of an inflation environment that
continued to be manageable, with the central bank still describing inflation expectations as well anchored.
Meanwhile, the BSP also trimmed the 2015 and 2016 annual inflation forecasts to 2.1 percent and 2.5 percent,
respectively, from 2.3 percent and 2.6 percent. JP Morgan said it expected annual inflation to hit 1.7 percent this
year and 2.4 percent in 2016.
BSP sees CPI (consumer price index) settling within the lower half of the target range and the statement
suggested that the central bank sees risks to the inflation outlook as broadly balancedwith upside risks from
potential hikes to domestic utility prices but downside risks from an uncertain global commodity price outlook,
the economist said.
The central bank also noted that despite the soft first-quarter economic growth of 5.2 percent, domestic demand
conditions remained firm.
Ong noted, however, that while we would generally agree with this view, there is also some risk that the recent
export slowdown could also affect non-construction investment. That said, there are mitigating factors, foremost
the ample liquidity in the banking system, still-easy credit conditions and easing inflation, which recently
breached the lower bound of the central banks inflation target range of 2-4 percent year-on-year.

In its statement, the BSP said its decision to keep interest rates unchanged last week was based on the
assessment that current monetary policy settings remained appropriate given the within-target inflation
forecasts and the underlying strength of domestic demand conditions.

PH energy sector: Will it be left out in the AEC?

The Philippine energy sector is literally and figuratively having a buffet of problems
and these have been giving industry players major headaches.
Now, this is the question begging for an answer: Will the Philippine energy sector be able
to compete with its neighboring countries in next years much-anticipated ASEAN
Economic Community (AEC) regime?
In the powerinsector,
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are
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theyofhave
been seeing silver lining in the harmonization of product standards, primarily for biofuels
and even for the market foray of higher quality fuel products like the Euro IV and
eventually Euro V standards.
Unfortunately for the power sector, it failed learning lessons from the worst power crisis
it had in the 1990s.
It appears that the brunt of the extreme electricity crisis of 8-10 hour blackouts in the
past had not been enough to give policymakers a wake up call or whack on the head, so
they could have sensibly prepared plans and measures to spare the country for any
threatening second round.
Past that, there is also the issue of high electricity rates that could thump us down when
it comes to competing with neighbors on the investments milieu.
A study undertaken by the Philippine Independent Power Producers Association, Inc.
(PIPPA) pointed out that while we may be better than most in GDP/kWh (gross domestic
product per kilowatt hour) productivitypaying for more power weakens our
competitiveness.
The study outcome of the power industry players has emphasized that to be at par with
the $GDP/$kWh of Malaysia, Thailand and Vietnam, Philippine power rates should be
lower by about 20 percent or a reduction of P1.70 per kWh.
Almost in chorus, players in the energy sector are emphasizing that entering a
competitive sphere with ASEAN neighbors may have been desirable - but that is only if
we know how to address our own problems first before we go out in the field to
compete.
Sure, there are feasible laws and policies governing various segments of the industry,
but various stakeholders averred we are terribly failing in enforcements.
In many instances, investors in the Philippines were shocked with drastic changes or flipflopping in policies that are being triggered either by political pressures and even
judicial interventions.

So in the game of cornering fresh capital to add up capacities for the long-term power
supply or in pursuing energy security, the country is also manifestly fledgling compared
to other member-economies in the region.
It is also regrettable that even if energy concerns are now reaching the top of global
development agendas, significant policy gaps still exist.
According to Energy Undersecretary Loreta G. Ayson, in many countries, policies focusing
on the integration of energy sectors of the Asean region are still at starting point of
discussions including those on planned massive scale investments of liquefied natural
gas.
Policies may have been tackled on bits-and-bobs at each sector, but the lacking piece in
the puzzle, is collaborative discussions and harmonizing intersecting edicts of various
member-countries, she said.
That is the reason ASEAN integration is being proposed as a high point agenda in next
years Asia Pacific Economic Cooperation (APEC) conference to be hosted by the
Philippines.
We are focusing our efforts in expanding green energy sources in the total energy
supply, one of which includes the establishment of an expanded natural gas use in
different parts of the Philippines, Ayson said.
She added that as an underpinning policy, the Department of Energy will be increasing
the share of natural gas in the energy mix through intensified investment promotion
activities with an intent to be competitive and aligned also with the policies being
advanced by other ASEAN countries.
And on the long-propounded Trans-Asia Gas Pipeline (TAGP) interconnection, the
Philippines is also seen at the end of the line given its seemingly disjointed and
extremely-archipelagic set-up compared to the land-locked configuration of neighborcountries.
On a more positive note, Energy Undersecretary Zenaida Monsada has asserted that the
ASEAN-wide integration could reinforce harmonization of products standards, including
on biofuels, which could widen the market of ASEAN biofuels into other parts of the
world, like Europe.
She added that the Philippine mandate on of Euro IV product introduction at gas pumps
by year 2016 will similarly broaden the sourcing or importation options of domestic oil
players hence, prospectively giving them better leverage when it comes to securing
the products at competitive prices.
For certain, the regions much-touted economic success could be something to celebrate
about but such may also bring new challenges and primarily its tremendously
growing demand for energy shall be set as a powerful argument for urgent, concerted
action.
And that call for collaborative action is now not tomorrow when the stakes are already
out of hand into the viable solution-finding realm.
For emphasis on the power sector, its chances of becoming competitive will highly
depend on how soon it can address its tangled dilemmas on supply, more expensive

electricity rates and uncertain policies and regulatory frameworks. Sadly for now, the
prospects are not that bright.

Asian stock markets sink after Greece closes banks

BEIJING Asian stock markets sank Monday after Greece closed its banks and imposed
capital controls in a dramatic turn in its struggle with heavy debts.
Oil prices declined and the euro edged down against the dollar after Athens announced
the moves to stanch the flow of money out of Greek banks and put pressure on creditors
to offer concessions before a bailout program expires Tuesday.
Tokyos Nikkei 225 index fell 2 percent to 20,283.98 points. The Shanghai Composite
Index was off 0.4 percent at 4,178.56 despite Chinas surprise weekend interest rate cut.
Hong Kongs Hang Seng lost 1.7 percent 29,192.67. Seouls Kospi shed 1.6 percent to
2,057.52 and Sydneys S&P ASX 200 was off 1.8 percent to 5,447.80. Market benchmarks
in Taiwan, Singapore and New Zealand also fell sharply.
After an 8-hour session, Greeces Cabinet decided banks would remain shut for six
business days and restrictions would be imposed on cash withdrawals. The Athens Stock
Exchange will also be closed Monday. The developments follow Prime Minister Alexis
Tsipras sudden weekend decision to call a referendum on European and International
Monetary Fund proposals for Greek reforms in return for vital bailout funds.
The accelerating crisis has raised questions about whether Greece might withdraw from
the 19-nation euro currency, a move dubbed Grexit.
Even if a deal is somehow reached, the ability of Greece to implement agreed reforms is
doubtful, said IHS Global Insight economist Rajiv Biswas in a report.

Greek withdrawal from the euro could lower Asian economic growth by 0.3 percent next
year due to disruption in trade and financial markets, Biswas said.
Globally, Greeces brinksmanship with its creditors is unlikely to have as severe an
impact as the financial panic set off by the collapse of Lehman Bros. in September 2008,
economists said.
Today, the European banks have shed much of their Greek debt and they have
significantly increased their capital, said Mark Zandi, chief economist at Moodys
Analytics.
A Greek default and exit from the euro zone would be devastating to Greeces economy,
but no one elses, said Zandi. So, the Greek standoff will be disconcerting to financial
markets, but only temporarily.
The European Central Bank has vowed to do whatever it takes to prevent a financial
panic.
The ECB is a committed to buying 60 billion euros a month in bonds to push down
interest rates and help euro zone economies. It could buy more and flood financial
markets with cash to calm jittery investors.
They stand ready to do whatever it takes, says Jacob Kirkegaard, senior fellow at the
Peterson Institute for International Economics.
Chinas rate cut, the fourth since November, appeared to be aimed at reassuring
investors after a plunge in share prices last week, rather than boosting economic growth,
analysts said.
Beijing cut its benchmark lending rate by 0.25 percentage point and freed up money for
lending by lowering the reserves banks are required to hold.
The timing is rather market-friendly and appears to be meant to provide a support to
the market sentiment, said Credit Suisse economists Dong Tao and Weishen Deng in a
report.