MIDF Amanah Investment Bank Bhd. said the Bangko Sentral ng Pilipinas’s (BSP) inflation targeting policy is successful in anchoring inflation expectations.
MIDF said nominal wage growth has gone down and has been recording muted increase in recent years. Inflation is likely to be within the BSP’s target of 4 percent (+/- 1 percent) this year.
“For 2015 and 2016, the BSP is looking at 3 percent [+/- 1 percent], though the risks is tilted toward an upside, with the coming of El Niño, which will affect crop production and prices, and the persistent port congestion that may cause disruptions to supply and push costs higher,” MIDF said.
“Hence, policy for the next 12 to 18 months will continue to be geared toward ‘disinflation,’” it added.
It noted that the BSP believes that the economy is strong enough to absorb the impact of higher interest rates.
“Thus far, the Financial Supervision Division of the BSP believes that real estate has yet to pose risk to financial stability,” it added.
Real-estate prices are more driven by demand on the back of younger demographics profile, with average age of the population at about 23 years old and increasing migration from the other islands into the cities.
The low base factor was also cited as the factor behind the surge in prices in the last one to two years. Nonetheless, supply has also increased in tandem, hence the BSP expects prices to stabilize though likely to remain elevated because of the strong demand.
The MIDF research note said overseas Filipino worker (OFW) remittances “have a life of its own.”
The remittances, which reached $23 billion in 2013, are likely to be sustainable, providing funding to current account and that helped to support the exchange rate.
These inflows are more efficient in the sense that they reach out and got distributed widely throughout the provinces, which help support lending activities in rural areas.
OFW remittances help offset the impact of high jobless rate. However, the country still needs to find balance in exploiting its young demographics and build rising middle-income class.
“The country is striving to move away from the stigma of ‘labor exporter’ and aspires to be a broad-based growth-driven economy to catch up with the other more advanced Asian countries,” it said.
Various law reforms and economic programs to encourage foreign direct investments are testaments to the country’s move to transform itself.
It noted that the recent upgrade in its credit rating, strong performance in the stock market and the success in its PPP programs thus far showed that these measures are welcomed by investors.
OFW remittances and the thriving business-process outsourcing industry contributed significantly to its current account, as well as economic growth.