Philippine export growth supportive of further tightening

E&E exports also growing steadily.

It is expected that the Philippine central bank Bangko Sentral ng Pilipinas (BSP) will raise its key policy rate by another 25bps and then keep it steady at 4% until the year-end.

According to a research note from DBS, at this juncture, overheating risks are not glaring but not trivial either.

In particular, investment growth has been running at double-digit pace in the past 3 years, well above its long-term average of 5.5%.

GDP growth outlook remains strong for now anyway and this should support the central bank's policy stance. Export growth came in at 12.4% (YoY) in July, much slower than the 21.3% recorded in June.

Here's more from DBS:

But at the current pace, total export growth for the year is still likely to reach close to 10%. And more importantly, exports of electronics and electrical products (E&E) are growing steadily at 5% pace.

We expect positive contribution from net exports to overall GDP growth this year, unlike the case for the past couple of years.

Bulk of the adjustment in monetary policy has been delivered this year. Going forward, further policy normalization may be done through the rates on the Special Deposit Account (SDA), which will also help the central bank's case to absorb excess liquidity in the banking system.

Currently, loan growth is still trending at record-high 20% and the BSP is likely to keep a close eye on this front.

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