The Philippine tension between tightening, bond yields and employment
An expected Bangko Sentral ng Pilipinas rate rise, potentially lower Treasury yields and higher unemployment place policy, borrowing and employment conditions side by side in BusinessWorld reports.
Economics & Markets··Morning
A rate expectation amid slower growth
Economists speaking to BusinessWorld expect the Bangko Sentral ng Pilipinas to raise its policy rate by 25 basis points at its 27 August review. Such a move would be a third consecutive increase. Sources report it as a market expectation, with the decision still pending. On the other side of that expectation is an economy that grew by 2.3 per cent in the second quarter, its weakest pace since the pandemic. Security Bank chief economist Angelo B. Taningco said inflation and growth coming in below expectations supported a less aggressive tightening outlook. Capital Economics senior Asia economist Gareth Leather likewise described the case for additional increases as less clear-cut, although he still expects one more rise before the central bank stops and puts growth at about 3 per cent this year. Confidence differs between the two views. Their common ground is that a possible increase is being framed less as an attempt to cool an accelerating economy than as the expected completion of tightening while growth weakens. The tension between the direction of monetary policy and the pace of activity therefore supplies as much context as the prospective decision itself.[1]
How weaker data reaches borrowing conditions
Weak inflation and growth data also appear in expectations for Treasury auctions. The Bureau of the Treasury will offer as much as 60 billion pesos of Treasury bills on Monday, followed on Tuesday by a target of 30 billion pesos from reissued 10-year bonds with 7 years left to maturity. Those amounts are announced auction objectives; the view that yields may decline is an expectation from market participants. Rizal Commercial Banking Corp chief economist Michael L. Ricafort said secondary-market rates fell over the week after July inflation and second-quarter growth came in below expectations, reducing the urgency of further tightening. A trader speaking to BusinessWorld said the reissued bonds could fetch yields between 7.175 per cent and 7.225 per cent. The picture shows how an expected policy-rate increase and an expected decline in Treasury yields can coexist. The first concerns a view of the central bank's next meeting, while the second describes the yield that may emerge at auctions after weaker data. Treating both indicators as one directional signal would miss their different maturities and market settings.[2]
The bottleneck revealed by labour entry
Labour data make the household-level setting behind the policy and market expectations visible. Unemployment in the Philippines rose to 4.9 per cent in June. Philippine Statistics Authority data show that about 650,000 people entered the labour force to seek work for the first time, while only about 310,000 of them found jobs. Underemployment also increased to 12.1 per cent from 11.4 per cent a year earlier. Action for Economic Reforms coordinator Filomeno S. Sta. Ana III said weak second-quarter growth and declining investment helped explain why employers did not absorb enough new entrants, while informal work remained widespread. Ser Percival K. Peña-Reyes of the Ateneo Center for Economic Research and Development said underemployment extended the problem beyond the number of jobs to their adequacy and quality. Read together, the three developments present one economy through separate gauges: an expected final tightening step for the central bank, potentially lower yields for the Treasury and limited absorption for people seeking work. The outcome remains open. Weak growth is shared context across the three reports, while weak inflation, declining investment and informality also appear as separate influences.[3], [1], [2]
