2009.q2.ir presentation

8/3/2019 2009.Q2.IR Presentation

1/24

BSP INFLATION REPORTBSP INFLATION REPORT

First Quarter 2009First Quarter 2009Second Quarter 2009

INFLATIONREPORTINFLATIONREPORT

Bangko Sentral ng Pilipinas

Second Quarter 2009Second Quarter 2009

Press ConferencePress ConferenceMain Meeting Room,Main Meeting Room,Executive Business Center, BSPExecutive Business Center, BSP4 August 2009, 2:00 pm4 August 2009, 2:00 pm



Outline

1) Price developments

2) Demand and supply conditions

3) Fiscal developments

4) Monetary, financial and external conditions

5) Monetary policy actions

6) Inflation outlook

7) Implications for monetary policy

2


2/24



Overall price pressures continued to abate in Q2 asboth food and non-food inflation decelerated further

1. Price Developments

Inflation Rate

(2000-based)

(in percent)

Q2 09 Q1 09 Q2 08

Headline 3.2 6.9 9.7

Food 5.6 11.9 13.8

Non-food 0.7 2.2 6.1

Headline

3.2

Food5.6

Non-food0.7

3



Fuel and rice prices (both key determinants of headline inflation) are well below 2008 peak levels

10

20

30

40

50

60

70

2007 2008 2009

Unleaded Gasoline Diesel Oil

Local Retail Prices of Selected Oil ProductsPrice in pesos per liter

Jun2009P34.61

Jun 2009P42.71

4


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Core inflation also decelerated in Q2

5



By geographical location, sharp declines wererecorded in NCR and areas outside NCR

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2001 2002 2003 2004 2005 2006 2007 2008 2009

Philippines NCR AONCR

INFLATION RATES BY AREAQ1 2001 - Q2 2009

6


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7

2. Developments in Demand and Supply

National Income Accounts

Growth rates, in percent

Sector Q109

Q408

Q108

2008 2007

GNP 4.4 6.7 6.4 6.2 7.5

GDP 0.4 2.9 3.9 3.8 7.1

Economic activity slowed markedly in Q1

0

1

2

3

4

5

6

7

8

9

10

2002 2003 2004 2005 2006 2007 2008 2009

GDP GNP

GDP and GNP Growth RatesAnnual Growth in Real Terms (%)

0.4 pct

4.4 pct

Q1 2009



Private spending growth slowed down in Q1 2009while exports and capital formation declined

2. Developments in Demand and Supply

National Income Accounts

Growth rates, in percent

Sector Q1 09 Q4 08 Q108

2008 2007

By expenditure item

PersonalConsumption

0.8 5.0 5.1 4.7 5.8

GovernmentConsumption

3.8 2.6 -0.3 3.2 6.6

CapitalFormation

-16.5 -13.1 -1.7 1.7 12.4

Exports -18.2 -11.5 -7.7 -1.9 5.4

Imports -19.2 5.0 -2.6 2.4 -4.1

-25

-20

-15

-10-5

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Private Consumption Govt. Spending Fixed Inves tment

Domestic DemandAnnual Growth in Real Terms

8


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On the supply side, industrial output fell because ofweak economic activity in key export markets, whileservices and agriculture posted modest expansions

National Income AccountsGrowth rates, in percent

Sector Q109

Q408

Q108

2008 2007

By industrial origin

Agriculture 2.1 2.9 2.8 3.2 4.8

Industry -2.1 5.3 2.7 5.0 6.8

Services 1.4 1.3 5.2 3.3 8.1

-5.0

0.0

5.0

10.0

15.0

2002 2003 2004 2005 2006 2007 2008 2009

Agriculture Industry Services

Agriculture, Industry and Services SectorsAnnual Growth in Real Terms

9



Q1 2009 GDP Growth of Selected Asian CountriesQ1 2009 GDP Growth of Selected Asian Countries

Source: Bloomberg

*

*

Across the region, output growth performance wasmixed, with more open economies experiencing thebrunt of the global economic downturn

10


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Various indicators suggest that economic conditionsremain challenging through the first half of 2009In Q2, consumer sentiment remained generally

weak; business sentiment however reflected a lessnegative outlook

CES and BES Diffusion Index

Q1 2005 Q2 2009

11


First Quarter 2009First Quarter 2009Second Quarter 2009Exports and imports sustained negative growth ratesalthough the rate of contraction appears to beabating

-31.9

-39.1

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

Jan-06

F

eb-06

M

ar-06

A

pr-06

M

ay-06

Jun-06

Jul-06

A

ug-06

S

ep-06

Oct-06

N

ov-06

D

ec-06

Jan-07

F

eb-07

M

ar-07

A

pr-07

M

ay-07

Jun-07

Jul-07

A

ug-07

S

ep-07

Oct-07

N

ov-07

D

ec-07

Jan-08

F

eb-08

M

ar-08

A

pr-08

M

ay-08

Jun-08

Jul-08

A

ug-08

S

ep-08

Oct-08

N

ov-08

D

ec-08

Jan-09

F

eb-09

M

ar-09

A

pr-09

M

ay-09

Imports Exports

ExportsEarnings and Import Billing

Year-on-year Growth

January 2006-May 2009

12


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Energy sales contracted due to weaker industrialsector consumption

-15

-10

-5

0

5

10

15

2007 2008 2009

Monthly Meralco Power SalesYear-on-year change in percent

13



Vehicle sales declined [although the automobileindustry attributes the drop in sales to inventoryproblems]

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009

VEHICLE SALESQuarterly Year-on-Year GrowthQ1 2007 - Q2 2009

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Property market continued toshow signs of slowdown, butcorrection is expected to beorderly increase in land values has

moderated

rental rates have softened

vacancy rate in Makati CBD hasincreased

Residential and Office Vacancy Rates inMakati CBD(%), Q1 2006 Q1 2009

0

20,000

40,000

60,000

80,000

100,000

120,000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Average Land Values, Makati CBD and OrtigasReal prices, based on rebased CPI (1991=100)

(in pesos per square meter)

Makati Or tigas

0

100

200

300

400

500

600

700

2001 2002 2003 2004 2005 2006 2007 2008 2009

Office and Residential Rental ValuesReal prices, based on rebased CPI (1995=100)(in pesos per square meter per month)

Office rental value Residential rental value

-

2

4

6

8

10

12

14

office

residential

15



Nonetheless, capacity utilization of manufacturingfirms has been rising since February

16


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Labor marketLabor conditions improved during the quarter: unemployment

and underemployment decline year-on-year

Number of unemployed persons decreased by 2.9 percentyear-on-year to 2.830 million from 2.914 million

0.0

5.0

10.0

15.0

20.0

25.0

6.0

6.5

7.0

7.5

8.0

8.5

9.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009

Unemployment rate, SA (Left Scale) Underemployment (Right Scale)

Unemployment and Underemployment Rate

17



NG fiscal deficit for the first semester of 2009 waslower than the programmed ceiling

3. Fiscal Developments

National Government Fiscal Performance*January-June 2009

In billion pesos

January - June Growth

(%)

2009Q1-Q2

Program

% toQ1-Q2

Program2009 2008

Su rplus/(Deficit) -153.4 -18.0 752.2 -155.1 98.9

Revenues 545.7 570.0 -4.3 581.4 93.9

Expenditures 699.1 588.0 18.9 736.5 94.9

*Totals may not add up due to round ing

Source: Bureau of the Treasury

18


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4. Monetary, Financial and External Conditions

Governments, central banks, and investors alikecontinue to watch for signs that will either confirmor negate expectations that the global economicdecline is indeed showing signs of bottoming out

In Q2, financial markets appeared to be stabilizing

19



Stock market activity

was upbeat in Q2

The PSEi averaged

2,310.3 index points,

higher by 21.9 percent

(q-o-q)

Foreign investors

turned net buyers in Q2


500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

PSE Composite Index

20


11/24



Debt spreads narrowed as financial markets showsigns of stabilizing


100

200

300

400

500

600

700

800

900

J-08F-

08M-08A-08M-08J-08

J-08

A-08S-08O-

08N-

08D-

08J-09F-

09M-09A-09M-09J-09

EMBI+ PhilippinesEMBI+Global

Emerging Markets Bond Index SpreadJanuary 2008 30 June 2009

0

200

400

600

800

1000

1200

1400

J-08F-

08M

-08A-08M

-08J-08

J-08A-08S-08O-08N

-08D-

08J-09M

-09A-09M

-09J-09

Phi lippines Indonesia

Thailand Malaysia

Philippine 5-year Credit Default Swap (CDS)January 2008 30 June 2009

21



However, the pesodepreciated slightly in Q2 dueto the weaker growthoutlook, a widening fiscaldeficit, possible creditdowngrades, and the politicalnoise associated with the

proposed constitutionalamendments

Nonetheless, exchange ratemovements turned lessvolatile


Peso per US Dollar Rate

P/US$

End-period

AverageStandardDeviation

2008 2Q 42.98 1.06

2008 4Q 47.44 0.91

2009 1Q 47.77 0.62

2009 2Q 47.88 0.50

22


12/24



On year-to-datebasis, most Asiancurrencies alsodepreciated

Changes in Selected Dollar Rates

Appr./Depr. (-)

Year-to-date

30 Jun 09* 31 Mar 09**

Philippine peso -1.3 -1.7

Thai baht (onshore) 2.2 -2.1

Chinese yuan 0.0 -0.1

Malaysian ringgit -1.4 -4.9

South Korean won -1.4 -8.9

Singaporean dollar -1.1 -5.9

New Taiwan dollar -1.1 -3.3

Indonesian rupiah 9.2 -4.1

Japanese yen -5.2 -7.8Indian Rupee 1.8 -4.0

Source: Bloomberg, Reuters and PDEX

*As of 4:00 p.m., 30 June 2009

**As of 4:00 p.m., 31 March 2009

23



On a real, trade-weighted basis, the peso gained externalprice competitiveness against MTPs and broad and narrowcompetitors in Q2 2009 compared to Q1 2009


Narrow

Broad

MTPs

* MTP basket includes currencies of US, Japan, the Euro area, and UK. Broad basket includes currencies of Singapore,South Korea, Taiwan, Malaysia, Thailand, Indonesia and Hong Kong while Narrow basket includes currencies ofMalaysia, Thailand, and Indonesia.

Real Effective Exchange Rate Indices, Q1 2006 Q2 2009

24


13/24




Interest rates decreased in Q2 relative to the previousquarters levels as market sentiment turned morefavorable and inflation conditions improved

2

3

4

5

6

7

8

9

10

11

12

3Mo 6Mo 1Yr 2Yr 3 Yr 4Yr 5Yr 7Yr 10Yr 20Yr 25Yr

Yieldinpercent

Maturity

e nd-Dece mb er 200 8 e nd- Mar ch 2 009 e nd- June 20 09

Yield of Government Securities in the Secondary Market

In percent

2

3

4

5

6

7

8

2007 2008 2009

91-day T-bill rate Overnight RRP Rat e

91-day T-bill rate and BSP RRP rateIn percent

25




Similarly, bank lending rates continued to decline,indicating partial pass-through of the BSPs policy ratecuts

8.3

8.4

8.5

8.6

8.78.8

8.9

9.0

9.1

9.2

9.3

9.4

2-5Dec08

8-12

15-19

22-24

5-9Jan09

12-16

19-23

26-30

2-6Feb

9-13

16-20

23-27

2-6Mar

9-13

16-20

23-27

30Mar-3Apr

7-8

13-17

20-24

27-30

4-8May

11-15

18-22

25-29

1-5Jun

8-12

15-19

22-26

ACTUAL BANK LENDING RATESin percent

26


14/24



Actual

Total Increase/

Decrease* (basis

points)

Onite RRP

Total Increase/

Decrease* (basis

points)

15-19 Dec 2008 9.232 -4 5.500 -50

30 Mar-3 Apr 8.837 -44 4.750 -125 34.8

7-8 8.948 -32 4.750 -125 25.9

13-17 8.821 -45 4.500 -150 30.1

20-24 8.769 -50 4.500 -150 33.5

27-30 8.695 -58 4.500 -150 38.5

4-8 May 8.792 -48 4.500 -150 32.0

11-15 8.758 -51 4.500 -150 34.3

18-22 8.663 -61 4.500 -150 40.6

25-29 8.559 -71 4.250 -175 40.7

1-5 Jun 8.481 -79 4.250 -175 45.2

8-12 8.436 -84 4.250 -175 47.8

15-19 8.499 -77 4.250 -175 44.2

22-26 8.401 -87 4.250 -175 49.8* relative to 8-12 Dec levels

Period

Banks' Lending Rates (%) Policy rate (%)Pass-through

rate (%)

27



Liquidity and bank lending growth continued to hold up


28

-2.0

0.0

2.0

4.0

6.0

8.010.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

28.0

30.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

M3 =15.0 %

KB Lending = 17.3%


15/24


First Quarter 2009First Quarter 2009Second Quarter 2009BSP Senior Bank Loan Officers SurveyBSP Senior Bank Loan Officers Survey


First Quarter 2009First Quarter 2009Second Quarter 2009 The banking system remained stable

0

2

4

6

8

10

12

14

0

1

2

3

4

5

6

7

2002 2003 2004 2005 2006 2007 2008 as ofend-Apr

2009

Le ve l (in trillion pe sos) % Growth

12

14

16

18

20

'Dec2003

'Dec2004

'Dec2005

'Dec2006

Mar2007

J un Se p ' De c Mar2008

Jun Sep Dec

2468

10

121416

1820

'Jan2006

Apr Jul Oct 'Jan2007

Apr Jul Oct 'Jan2008

Apr Jul Oct Jan2009

Apr

1

6

11

16

21

26

Jan2008

Feb Mar Ap r M ay Jun Ju l Au g Sep Oct Nov Dec Jan2009

F eb M ar Ap r M ay

Net of RRps

Gross of RRps10.2

17.3

Banking System Asset Growth (%)2002 February 2009

Banking System Capital Adequacy Ratio(%)December 2003 December 2008

Banking System NPL Ratio (%)

January 2006-April 2009

Growth in Loans: Outstanding Loans ofCommercial Banks (%)

January 2008 - May 2009

15.5 pct

4.2 pct


P5.8

9.4 pct

30


16/24



5. Monetary Policy Actions

In Q2, the Monetary Board (MB) cut policy rates by another

50 basis points (bps), this brings the cumulative reduction to

175 bps in the BSPs key policy rates since December 2008

Motivating the MBs policy actions were: Baseline forecasts indicated that average inflation will settle

within the target ranges in 2009 and 2010

On balance, inflation risks were skewed to the downside givenexpectations of weaker global and domestic demand conditionsand a low probability of a significant near-term recovery incommodity prices

However, upside risks remained, and these were linked to thevolatility in exchange rates, the movement in world oil prices,possible increases in utility rates, and as the impact of paststimulus measures begin to take effect

31



5. Monetary Policy Actions

In deciding to ease further the key policy rates, theMB considered that:

Accommodative monetary policy will help supportdemand and minimize the adverse effects fromweakening economic and financial conditions

An expansionary policy stance, by lifting household andbusiness spending, could support market confidence

While there were encouraging signs that the globalslowdown may be bottoming out, it was too early toconclude that global economic conditions were clearlymoving towards normalcy 32


17/24



What is the

inflation outlook?

33


First Quarter 2009First Quarter 2009Second Quarter 20096. Inflation Outlook

The BSP's latest baseline forecasts indicate inflation

would settle at around the middle of the 2009

inflation target range and at the lower bound of the

2010 inflation target range

Inflation expectations continue to be well-

contained, supporting the manageable inflationoutlook

34


18/24



The BSPs survey of private economists showed

inflation is expected to remain within the target

ranges for 2009 and 2010

4.14.2

6.1

6.5

4.5

4.0

3.5

4.84.9

4.84.6 4.9

4.8

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009

2009

2010

2011

MEAN INFLATION FORECASTS BY PRIVATE ECONOMISTS/ANALYSTSIn percent

57.7

26.6

36.9

0.0

10.0

20.0

30.0

40.0

50.0

60.0

12

2009 2010 2011

Probability Distribution For Analysts' Inflation Forecasts*2009 -2011

*Probability distributionsw ere averages of those provided by 11 respondents.(Source: BSP Survey) 35



Similarly, the Asia Pacific Consensus (AP) forecasts

showed easing inflation expectations

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Jan-0

7

Fe

b-0

7

Mar-

07

Apr-

07

May-0

7

Jun-0

7

Ju

l-07

Aug-0

7

Sep-0

7

Oc

t-07

Nov-0

7

Dec-0

7

Jan-0

8

Fe

b-0

8

Mar-

08

Apr-

08

May-0

8

Jun-0

8

Ju

l-08

Aug-0

8

Sep-0

8

Oc

t-08

Nov-0

8

Dec-0

8

Jan-0

9

Fe

b-0

9

Mar-

09

Apr-

09

May-0

9

Jun-0

9

AP Consensus Survey of Inflation ForecastsMonthly, In percent

2008

2009

2010

3.6

4.4

36


19/24



Business Expectations Survey (BES) for Q1 2009 alsoindicated that inflation expectations continued to be

manageable

Indices of Expectations from Q1 2009 and Q2 2009 BES: Inflation Rate*In index points

Q1 2009 Q2 2009 Q3 2009

Q2 2009 BES 14.1 15.0

Q1 2009 BES 14.0 12.2

* The index is calculated as the percentage of firms that answered in the affirmative less thepercentage of firms that answered in the negative. A positive index indicates that most respondentsexpect inflation to increase.

37



Results of the latest CES for Q2 2009 likewise showed

broadly unchanged inflation expectation for the next

12 months: from 8.6 percent in the previous survey to

8.7 percent

In terms of the diffusion index, a slightly bigger

majority of households nationwide expects increases

in the prices of goods and services over the next 12months: from 46.2 percent in Q1 2009 to 49.3 percent

in Q2 2009

6. Inflation Outlook

38


20/24



Consistent with the survey results, secondary market yieldson government securities declined in Q2 2009, reflecting

investors expectations of reduced inflationary pressures

2

3

4

5

6

7

8

9

10

11

12

3Mo 6Mo 1Yr 2Yr 3 Yr 4Yr 5Yr 7Yr 10Yr 20Yr 25Yr

Yieldinpercent

Maturity

end-December 2008 end-March 2009 end-June 2009

Yield of Government Securities in the Secondary Market

In percent

39



The latest inflation fan

chart shows a lower central

projection and a risk profile

slightly tilted to the

downside

Average inflation is likely to

settle around the middle of

the 3.5 percent +/- 1.0

percentage point targetrange for 2009 and at the

lower bound of the 4.5

percent +/- 1.0 percentage

point target range for 2010


40


21/24



Latest central projection indicates a possible bottoming

out of inflation in Q3 2009, a gradual rise in the following

quarter, and broadly stable inflation in 2010

Downside pressures on prices predominate due to base

effects as well as expectations of further weakening of

domestic demand conditions and a slower-than-expected

global economic recovery, the latter is expected to

dampen inflation expectations and imported inflation


41



Nonetheless, the BSP is mindful of upside pressures on

prices over the long term; possibility that commodity

prices may be reaching the trough as: Contraction in industrial production may have bottomed out Weakening of the US dollar Impact of stimulus measures done and in pipeline Supply contraction due to tight financing and low prices

Consensus view: With recovery expected to be gradual andweak due to lingering financial market weaknesses, rapid

and appreciable rebound in commodity prices seems

remote for the near term


42


22/24



How does our inflation forecast affect

our monetary policy stance?

43



7. Implications for Monetary Policy

The continued favorable inflation outlook provides

room for policy flexibility

With nominal policy interest rates far from the zerobound, the BSP has flexibility in its policy actions

44


23/24



7. Implications for Monetary Policy

With the inflation and demand outlook subdued, there

could be some scope for monetary policy to balance any

trade-off between short-run inflation variability and

short-run output variability

45

[On 9 July 2009, the MB reduced the RRP and RP ratesfurther by 25 basis points to 4.0 and 6.0 percent,

respectively.]


First Quarter 2009First Quarter 2009Second Quarter 20097. Implications for Monetary Policy

Going forward, monetary policy will continue to providesupport to economic activity to the extent that theinflation outlook would allow

The decision to provide additional monetary stimuluswill be carefully considered, taking into account themonetary easing measures that have already beenimplemented since November 2008

46


24/24


First Quarter 2009First Quarter 2009Second Quarter 20097. Implications for Monetary Policy

With considerable monetary stimulus already in place,and the implementation of fiscal action already in thepipeline, the BSP believes that prevailing monetarysettings are appropriately calibrated to the outlook forinflation and domestic demand

The BSP will continue to pay close attention to signs ofglobal demand recovery as well as to a possible build-upin commodity price pressures over the medium term, witha view to undertaking timely action towards a non-

inflationary recovery in economic activity

47



INFLATIONREPORTINFLATIONREPORT

Bangko Sentral ng Pilipinas

Second Quarter 2009Second Quarter 2009

Press ConferencePress ConferenceMain Meeting Room,Main Meeting Room,

Executive Business Center, BSPExecutive Business Center, BSP4 August 2009, 2:00 pm4 August 2009, 2:00 pm

2009.q2.ir presentation

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