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AMRO adds to expectations of PHL growth slowdown as price hikes bite

A REGIONAL research group has slashed its growth forecast for the Philippines, noting that surging inflation and consumer pessimism will likely weigh on household spending and dampen overall expansion.
The ASEAN+3 Macroeconomic Research Office (AMRO) joined multilateral lenders in trimming the growth estimate for the Philippines to 6.5% from 6.8% previously, as reported in the October issue of its Regional Economic Outlook.
That puts the Philippines as the sixth fastest-growing economy among the 10 Association of Southeast Asian Nations (ASEAN) members plus China, Hong Kong, Japan and South Korea, while domestic inflation is the fastest across the 14 markets covered.
“For the growth rate revision, the main reason is that inflation is higher than previously expected, and high inflation continued to erode the purchasing power of household and consumer confidence,” AMRO chief economist Hoe Ee Khor said via e-mail when sought for an explanation.
Myanmar is expected to post the fastest growth at 7.4%, followed by Cambodia (7.2%), Vietnam (6.9%), Laos (6.7%) and China (6.6%).
Philippine gross domestic product (GDP) posted a disappointing six percent expansion in the second quarter, fueling last semester’s climb to 6.3% against the government’s 7-8% target for the full year and the 6.6% actually clocked a year ago.
Meanwhile, inflation is projected to soar to 5.2% for 2018, a leap from the 3.2% average last year. Mr. Khor said rising costs of basic goods are eating into real GDP growth, and are expected to be the major hurdle to expansion.
September inflation churned a fresh nine-year high at 6.7% as food, transport and utility costs kept increasing amid supply bottlenecks and elevated oil prices. This placed the third-quarter average at roughly 6.3% while the nine-month pace hit five percent, well above the 2-4% target band for 2018.
“Private consumption has already shown some weakness and GDP growth decelerated to six percent in Q2 2018. Moreover, consumer confidence contracted in Q3 2018 for the first time since Q3 2016. Thus, as private consumption takes up around 70% in GDP, it led to the revision,” the AMRO official said.
The central bank’s Consumer Expectations Survey bared a net -7.1% reading in the third quarter, showing that more Filipinos were pessimistic towards economic prospects as they see commodity prices maintain their ascent. This is the first time since mid-2016 when the confidence score was in the negative, and is the lowest since the fourth quarter of 2015.
The AMRO’s revisions mirror similar downgrades by the World Bank and the International Monetary Fund, while the Asian Development Bank pencilled in a lower forecast of 6.4% the past week.
AMRO said that the downward-revised growth rate “still reflects the robust growth of the Philippine economy.”
Budget Secretary Benjamin E. Diokno last week conceded that the state’s growth goal is as good as missed, but could still manage to hit 6.7-6.9% as he expects economic activity to improve this semester.
In 2019, AMRO sees Philippine GDP growth slowing further to 6.4%. This is slower compared to the 6.7% given by the IMF and the World Bank.
Mr. Khor said his group was watching external risks “closely,” after it maintained the ASEAN+3 region forecast at 5.4% this year, “as most economies are on track to achieve their growth targets,” even as it shaved its 2019 projection to 5.1% from 5.2% initially.
Still, AMRO expects the Philippines to be resilient to external shocks, as its macroeconomic fundamentals remain sound.
“The macroeconomic fundamentals of the Philippines are generally sound, with no serious external imbalance and it has ample international reserves,” Mr. Khor said.
“Moreover, the latest data suggest that the current account deficit remained contained and the basic balance is still positive. Thus, the economy is expected to remain resilient against external shocks.” — Melissa Luz T. Lopez and Elijah Joseph C. Tubayan

WB readies $300-M loan to improve gov’t revenue, spending efficiency

THE WORLD BANK is preparing a $300-million loan for the government designed to improve revenue and spending efficiency.
According to World Bank documents made public on Friday, Country Director for the Philippines Mara K. Warwick approved the Improving Fiscal Management project on Oct. 1, and that the “review did authorize the preparation to continue.”
The project, to be implemented by the Department of Finance, is expected to receive World Bank board approval on Dec. 18.
The multilateral lender said that the loan seeks to provide assistance to increase revenue potential and economic efficiency of tax policy; improve budget planning and execution efficiency of spending; and strengthen financial risk management of public assets.
“This DPL (development policy loan) supports the government’s core objective to strengthen fiscal management by mobilizing higher domestic revenue, improving budget management, and reducing fiscal risks,” read the document.
The loan program includes technical assistance for amending and expanding tax instruments; taking regulatory measures against tax base erosion; improving central government budget reporting; strengthening the predictability of the budget; and implementing a policy for disaster risk financing, including setting up the necessary institutions and risk insurance instruments. — Elijah Joseph C. Tubayan

SNAP seeks ‘nat’l significance’ certification for new project

By Victor V. Saulon, Sub-editor
SN ABOITIZ POWER (SNAP) has submitted its latest hydroelectric project for inclusion in the Energy department’s list of certified energy projects of national significance (CEPNS), the government’s policy that aims to hasten the development of new power plants.
“We hope to enjoin and get their support and advocacy for this project,” said Joseph S. Yu, SNAP president and chief executive officer, in an interview last week.
He said the company’s application was submitted in late September, making it among the latest addition to the hundred of applications so far received by the Department of Energy (DoE) since the President signed Executive Order 30 in June 2017.
DoE, which issued the implementing rules and regulations in April 2018, has so far certified four projects. EO 30 intends to establish a simplified approval process and harmonize the relevant rules and regulations of all government agencies involved in the permitting process.
Mr. Yu said the company had complied with most of the requirements to be certified.
“Four of the five, I think, if I’m not mistaken,” he said, including the cost of the project and its technical complexity.
“At the very least, if it’s a project of national significance it should warrant more attention,” he said.
The project is composed of 20-megawatt (MW) Ollilicon and the 120-MW Alimit hydroelectric power plants. The technical studies for the third component, the 250-MW Alimit pumped storage, have been temporarily suspended due to market constraints.
SNAP was issued the renewable energy service contract for the project in 2014. The signed agreement brings the renewable energy company and Ifugao a step closer toward building the first hydropower facility in the province.
On Oct. 4, SNAP and the municipal governments of Aguinaldo, Lagawe and Mayoyao signed a framework agreement on the proposed Alimit hydropower complex in Ifugao province.
The agreement outlines the cooperation, collaboration and obligations between and among SNAP as project proponent and the municipalities as hosts during the development and operation phase of the project.
“It took us four years to achieve this milestone. What we are trying to build here are a partnership and a relationship with our stakeholders. We can achieve these. If we are all willing to commit, we have a better chance of succeeding,” Mr. Yu said in a statement during the weekend.
SNAP is a developer and operator of 100% renewable energy facilities. It is a joint venture of SN Power of Norway and Aboitiz Power Corp. It owns and operates the 380-MW Magat hydro on the border of Isabela and Ifugao; the 8.5-MW Maris hydro in Isabela; the 105-MW Ambuklao hydro in Benguet; and the 140-MW Binga hydro also in Benguet.

Ayala Land eyes fund-raising in early 2019

By Arra B. Francia, Reporter
AYALA LAND, Inc. (ALI) is planning to register another P50 billion under the Securities and Exchange Commission (SEC)’s shelf registration program, allowing the company to raise money from the issuance of fixed securities in the next three years.
“We’re considering, given that we’ve exhausted the first shelf of P50 billion. We’re looking at registering again either late this year or early next year. I guess a similar amount,” ALI Chief Finance Officer Augusto Cesar D. Bengzon told reporters after the listing ceremony for the company’s fixed rate bonds at Philippine Dealing and Exchange Corp. in Makati last Friday.
Mr. Bengzon said the debt securities program will be a combination of commercial papers, bonds, and other types of fixed income instruments.
“We should be filing probably early next year, because we have completed our funding requirements already for the year,” the ALI executive said.
The listed property giant last Friday used up the P50 billion under its initial shelf registration approved by the SEC in 2016. The company was able to raise P8 billion during the final tranche from the issuance of fixed rate bonds with an annual coupon rate of 7.0239%.
ALI also offered P10 billion in fixed rate bonds during the first half of the year, intended to fund the construction of several mall projects.
The company raised a total of P29 billion in fixed rate bonds from 2016 to 2017, and P3 billion worth of homestarter bonds in 2016.
The bond issuances this year partially financed the firm’s P110.8-billion capital expenditure, as ALI ramped up its project launches and construction to take advantage of the growing demand for residential units in the country.
Residential projects cornered bulk of ALI’s capex at 43% or P47.4 billion, while 17% or P18.7 has been allocated for mall projects. Some 12% or P14 billion will be for land acquisitions; P8.5 billion will be for office projects; P7 billion for hotels and resorts; while the remaining P8.8 billion will be for the development of existing estates.
With the accelerated spending, ALI has slated P125 billion worth of project launches this year, higher than the value of 28 projects it unveiled in 2017 at P88 billion.
ALI grew its net income attributable to the parent by 18% to P13.5 billion in the first six months of 2018, after revenues also went up by 18% to P80.4 billion. Reservation sales in the same period stood at P72 billion, indicating P12 billion worth of properties sold every month.
The higher capital spending is in line with ALI’s goal to reach a net income of P40 billion in 2020, with equal contributions from the residential and leasing segments.
Mr. Bengzon noted ALI would have to post a 17% compounded annual growth rate until 2020 to hit its target.

Chelsea Logistics allocates over $100M for fleet expansion

CHELSEA LOGISTICS Holdings Corp. (CLC) is allocating more than $100 million for the expansion of its fleet as it expects six passenger vessels to be delivered in the next three years.
The listed company inaugurated on Friday two new ships — the M/T Chelsea Providence oil tanker and the M/V Salve Regina passenger vessel at the Manila North Harbour Port.
Meron pang dalawa [There will be two] of this size, another $14 million. Then the (next) batches will be around $20 million each. Then the next two, ‘yung mas malaki [the bigger ones], will be another around $30 million each,” CLC President and Chief Executive Officer Chryss Alfonsus V. Damuy told reporters on Friday.
He said the company is adding more roll-on, roll-off (RoRo) passenger vessels to its existing fleet of 88 ships to cater to its underserved routes, and those routes that still utilize old vessels.
“There is a number of routes na underserved pa [that are still underserved]. It’s either underserved or served by vessels na [that are] due for phase out…. Isa ‘yun sa mga area na tinitingnan natin [That’s one of the areas we’re looking at] that we will replace it with ships like this or smaller sizes,” he said.
Mr. Damuy said the other six passenger ships it ordered will be delivered in twos per year, starting in November.
Memorandum Circular No. 2018-05 from the Maritime Industry Authority (MARINA) limits the age of registered cruise ships to be at most 20 years old. Mr. Damuy said around seven to eight vessels of CLC will be due for phase out in the next five years because of this.
“[The] new vessels will either replace the one that will be phased out (or will be used for) expansion to other new routes,” the CLC president said.
Aside from inter-port connections in Visayas and Mindanao, CLC is eyeing some routes including those from Batangas to Iloilo and Bacolod.
Mr. Damuy said at present, CLC’s share of the passenger market stands at around 30%. The company hopes to increase its share with the modernization of its fleet.
The company’s existing fleet is comprised of 16 tankers, 22 RoRo passenger vessels, 11 cargo vessels, 14 tugboats and one floating dock, operating across its units Chelsea Shipping, Starlite Ferries, Trans-Asia Shipping Lines, Inc. and Fortis Tugs. Its investee, the 2GO Group, Inc., has eight RoRo passenger vessels, five cargo vessels and 11 fastcrafts.
CLC reported a 29% increase in its net income during the first six months of the year to P360 million on the back of higher revenues from its shipping business. — Denise A. Valdez

Globe to deploy small cell antennas along major roads

GLOBE TELECOM, Inc. is expecting to speed up the roll out of more than 120 cell sites in Metro Manila as it signed an agreement with the Metro Manila Development Authority (MMDA) to cut the process for securing permits in building telco infrastructure.
In a statement over the weekend, the Ayala-led telecommunications giant said the deal allows it to deploy small cell antennas along EDSA, Roxas Boulevard, C5 and Congressional Avenue, among other locations.
“Securing various permits for the construction of telco infrastructure such as cell sites has long been a major challenge of the industry. We want to thank MMDA for sharing our vision of a connected Philippines by allowing us to deploy sites faster,” Globe President and Chief Executive Officer Ernest L. Cu said in the statement.
Globe said around 25 permits from local government units are needed to set up a radio tower, and the process takes about eight months. With the MMDA deal, Globe said the small cell antennas will help improve wireless network coverage in major thoroughfares controlled by MMDA.
“Globe Telecom has been a long time partner of the agency in terms of public service. This agreement is in line with President Rodrigo Duterte’s policy of easing the process of doing business in the Philippines and MMDA’s contribution to improving telecommunications service in Metro Manila,” MMDA Chairman Danilo D. Lim was quoted as saying.
In August, Globe gained approval from the Securities and Exchange Commission (SEC) for the establishment of a separate tower company expected to “help speed up the building and deployment of cellular towers in the country.” — Denise A. Valdez

Bengzon confident TMC ownership dispute will be resolved soon

THE CAMP of Dr. Alfredo R.A. Bengzon said they are confident the ongoing ownership dispute at The Medical City (TMC) will be resolved soon, for the sake of the hospital and its shareholders.
“We remain confident that this issue will come to rightful resolution soon and that, in the end, justice will prevail, and the genuine interests of The Medical City and its shareholders will be upheld,” according to an e-mailed statement by Mr. Bengzon’s representatives over the weekend.
The statement came after the Securities and Exchange Commission’s creation of a special hearing panel to investigate the ownership issues hounding the hospital.
Mr. Bengzon was recently removed from his post as TMC’s chief executive officer after his nephew and TMC Treasurer Jose Xavier B. Gonzales convened a special stockholders’ meeting last Sept. 13, which elected TMC medical director Eugenio Ramos as the new president and CEO. Mr. Gonzales was then named as the hospital’s new chairman.
Mr. Gonzales’ party also secured a court order affirming their election as TMC’s new officials.
The feud started when Mr. Bengzon filed a complaint with the SEC asking for intervention and the indefinite postponement of the company’s annual stockholders’ meeting, claiming that Mr. Gonzales and a group of foreign investors he brought into the company in 2013 were planning a hostile takeover.
The foreign investors included Singapore-based Clermont Group, Viva Holdings (Philippines) Pte. Ltd., Viva Healthcare Ltd., and Fountel Corp.
The group was then able to secure a 54% ownership in TMC through a corporate and shareholders agreement (CSA).
Mr. Bengzon noted that he was unaware of the CSA with the Clermont group, adding that it should be voided since the transaction was not publicly disclosed.
“We believe that the onerous Cooperation and Shareholder Agreement (CSA) that firmly binds them together, and the accompanying Loan Agreement with its most egregious terms — as well as their other actions leading to these unfortunate circumstances — fail the test of legitimacy, transparency and fairness,” as per Mr. Bengzon’s statement.
Mr. Bengzon also said that they will pursue all legal options to ensure that they can protect the rights and interests of TMC’s shareholders.
“The benefits should go to them, and not to a foreign business interest and its partners who appear to have used questionable, even illegal, methods to wrest control of The Medical City. It is to these shareholders whose rights have been jeopardized that we owe the obligation to pursue this fight,” he said. — Arra B. Francia

Fisheries bureau partly lifts ban on collecting seaweed

FISHERIES Administrative Order (FAO) 250-2 will allow individual fishermen to collect, sell, trade, and transport Sargassum, a type of brown seaweed, subject to seasonal restrictions and permit requirements.
The newly-published order from the Bureau and Fisheries and Aquatic Resources (BFAR) amends FAO 250-2 series of 2014 under former BFAR Director Asis G. Perez, which had banned was imposed on the collection, harvesting, selling, and export of Sargassum, which is cultivated as food in parts of Asia and can be used as fertilizer, animal feed and cosmetics, among others.
Seaweed Industry Association of the Philippines (SIAP) Chairman Maximo A. Ricohermoso, in a text message to BusinessWorld, said that “The FAO No. 250-2, series of 2018, is quite comprehensive covering the allowable gathering, transport, processing, and usage of Sargassum.”
“This FAO will surely benefit economically the poor fisherfolk sector particularly those engaged in gathering sargassum. It will allow the legal utilization of the resource for the benefit of the country and citizens,” Mr. Ricohermoso added.
The ban was imposed in 2014 as “the high demand of Sargassum in the export market has resulted in its uncontrolled harvesting/gathering, thus, compromising and threatening the balance in the marine ecosystem which in turn resulted in the loss of shelter and food-base of many aquatic organisms dependent on it.”
Under the revised order, only those with permit or license from local government units will be allowed to sell, trade and transport fresh or dried Sargassum and its untreated powdered form. The export of Sargassum in fresh, raw, dried, powdered form, or in its natural state, remains prohibited. However, processed, value-added, or finished goods made from Sargassum may be exported.
The registered consolidators, buyers, traders, and processors may only acquire Sargassum from licensed gatherers and collectors, according to the revised order. The BFAR, through Provincial Fisheries Office (PFO) will issue to sellers, consolidators, buyers, traders, and processors a Local Transport Permit (LTP).
Research and academic institutions seeking to collect Sargassum for scientific research are required to obtain a Permit to Conduct Research or Gratuitous Permit. The Secretary of Agriculture through the BFAR meanwhile may grant an exemption or special permit to collect natural populations of Sargassum for sustainable mariculture livelihood projects of registered fisherfolk, organizations, associations, and cooperatives.
Sargassum washed ashore can be collected or harvested freely, but not naturally-growing seaweed that is uprooted intentionally or is afloat.
Mr. Ricohermoso said: “Philippine fisheries, agriculture, health, and other sectors certainly welcome the progressive revision of FAO 250-2.” — Reicelene Joy N. Ignacio

Strong muses


ART DECO arrived in the early 1910s and emerged as the premier decorative style of the world in the period between the two World Wars. It took over from the asymmetrical fluidity of the Art Nouveau movement, perhaps as a response to the noisier world that awaited it; the world that Art Nouveau created having been charred by the unprecedented horrors of the First World War.
The First World War eliminated many able-bodied men of a certain age and generation, and this dearth of men in the workplace enabled many women to seek work and find fame and fulfillment for themselves. In this setting, designers like Coco Chanel and Suzanne Belperron emerged from obscurity and carved out reputations that would last for generations. It is from these two women that fine jeweler and designer Paul Syjuco bases his latest collection, called Muse.
BusinessWorld had a private viewing at his shop at the Peninsula Manila on Oct. 2, and a quick view of the pieces might deceive the buyer into a very simplistic analysis of his pieces: it is, at its core, a style retrospective of the 1930s, centering on Art Deco. However, despite the wealth of inspiration from the fabulous jewelers at the time, Mr. Syjuco took inspiration from just those two women, Chanel and Belperron. “There were the big jewelry houses, and they were sort of the rebels,” he said.
While Chanel is a household name these days, and Coco Chanel in the 1930s wasn’t exactly struggling, but she had a lot to fight for still. She emerged from poverty as the mistress of wealthy men who got her a head start in the business. Suzanne Belperron, on the other hand, has a certain misfortune in being known only in rarefied circles. The jewelry designer worked for influential jewelers of the time, but due to the Second World War, had to close down her business. The Nazis found fault in the Jewish links to her business, and she herself was arrested. The story goes that Ms. Belperron swallowed her address book one page at a time to protect her business partners and clients.
Either way, the two women went against the prevailing style of the era dominated by men. While architecture and jewelry relied on masculine, geometrical shapes, the two women designed jewelry that was softer, feminine, and colored — in contrast to the stark black and white creations popularized by the big designers of the era. “They were women, and they understood women,” said Mr. Syjuco about his muses.
Mr. Syjuco thus took a page from their book and designed a collection centering on look and design, instead of concentrating on the size and shape of the stones. Executed in many semiprecious stones, the result is a soft and bold statement — maybe like Lauren Bacall’s throaty whisper if it was to be crystallized.
There are earrings in the shape of hibiscus flowers, made with five flat pearls each, clustered around a stamen of gold and diamonds. Matching sets of gold and diamond jewelry in the shape of snails were also on display, and one of the anchor pieces of the collection was a necklace of large malachite beads supporting a pendant of horn, mother-of-pearl, and diamonds. A final piece that caught our eye was a set of emerald jewelry, with a central stone surrounded by a hexagonal lapis lazuli inlay, punctuated with a pave halo of diamonds.
Style takes cues from society, and more often than not, what happens to the world can be seen on the dressed body. In the case of style retrospectives such as this, it’s usually because what has been said before has to be said again. Earlier this week, Judge Brett Kavanaugh was confirmed as an Associate Justice of the Supreme Court of the United States, amid sexual harassment accusations. Mr. Syjuco said that his style retrospective of powerful women in the 1930s is only meant to be a statement against a homogenization in jewelry design. In the noise of #MeToo and several women standing up to several powerful figures, he still stresses a theme present in this collection: “Femininity, and the importance of women.” — J.L. Garcia

Megawide poised to launch Parañaque transport terminal in November

MEGAWIDE CONSTRUCTION Corp. is launching next month the Parañaque Integrated Terminal Exchange (PITX), a “landport” for passengers from the south going to Metro Manila.
“We will be on soft opening this October with full operations scheduled this November. We are working closely with the DoTr and affiliated agencies such as the LTFRB to ensure that we are ready,” Megawide subsidiary MWM Terminals, Inc. President Manuel Louie B. Ferrer said in a statement over the weekend.
MWM Terminals, a consortium of Megawide and WM Property Management, Inc., won the 35-year concession period to build and operate the PITX in 2015.
The P2.5-billion terminal located beside the old Coastal Mall in Parañaque City is expected to improve passenger movement by connecting buses, taxis, jeepneys, and in the future, the Light Rail Transit Line 1 (LRT-1) South Extension, in one portal.
“Our goal is to deliver hassle-free transfers between multiple modes of transportation in PITX. Many of our technologies are being used for the first time in a bus terminal setting in the country,” Mr. Ferrer added.
Once fully operational, the PITX is expected to receive an average foot traffic of 100,000 a day, but total capacity is at 200,000 passengers daily.
Megawide said the PITX has approximately 12,000-square meter (sq.m.) leasable space inside the building, which will be available to tenants by December. It will also lease four 17,900-sq.m. towers for interested tenants starting next year.
The PITX is a three-storey building that will feature departure bays for buses, jeepneys and taxis on the first floor, an arrival bay for buses on the second floor, and private car parking facilities, action utility vehicles (AUV) bays, and a link to the future LRT-1 South Extension on the third floor. — Denise A. Valdez

Rates of T-bills, bonds on offer to climb on faster Sept. inflation

RATES OF government securities on offer this week will likely climb anew, with bids for the five-year Treasury bonds (T-bond) expected to be rejected, as investors price in the elevated September inflation print.
The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today. Broken down, the government plans to raise P4 billion through the three-month debt, P5 billion through the six-month papers, and another P6 billion in one-year bills.
The Treasury will also auction off P15 billion worth of reissued five-year T-bonds with a remaining life of four years and four months tomorrow.
Bond traders said before the weekend that the T-bills on offer on Monday will likely fetch higher yields from the previous auction.
“The rates will climb by 10-20 basis points (bp) across all tenors from the previous auction,” the trader said in a phone interview.
Another trader, meanwhile, said the T-bills will attract bids with rates 15 bps higher from last week’s auction.
The Treasury awarded just P9.2 billion out of the the P15 billion worth of T-bills it intended to borrow last Monday, even as tendered bids reached P17.1 billion, as rates of the securities climbed past the government’s benchmarks.
Rates on the 182- and 364-day papers rose to 5.206% and 5.648%, respectively, while the Treasury rejected all tenders for the 91-day debt.
For the five-year bonds, the first trader said the papers may fetch an average rate between 7% and 7.5%.
“It’s possible that the BTr would reject again bids on the five-year bonds since the rates are higher than in the secondary market. They might reject it,” the trader added.
During the last five-year bond auction on Aug. 14, the Treasury opted to accept all bids, raising P15 billion as planned out of tenders reaching P24.5 billion. It fetched an average rate of 5.902%, higher than the 5.5% coupon.
At the secondary market before the weekend, the three- and six-month papers fetched rates of 4.7167% and 5.4516%, respectively, while the one-year T-bills was quoted at 5.6911%.
Meanwhile, the five-year T-bond fetched a rate of 7.1018%.
The traders said market players would price in the elevated inflation print for September.
Although slower than the 6.8% market consensus and central bank estimate, inflation surged anew in September to a fresh nine-year high of 6.7% as the strong typhoon last month worsened supply issues for rice and other crops.
Both the President’s economic team and the Bangko Sentral ng Pilipinas (BSP) believe inflation will be on a downtrend following the multiyear high last month. However, market watchers believe another interest rate hike is warranted to bring inflation within the 2-4% target.
“The inflation print has raised the possibility of another rate hike by next month,” the first trader said.
The BSP has raised its benchmark rates by a cumulative 150 bps since May.
The Treasury is raising P270 billion from the domestic market this quarter through auctions of securities, offering P180 billion in T-bills and another P90 billion in T-bonds.
The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal

Coffee industry should emulate wine, not soda

NEW YORK — Persistently low coffee prices for producers across the globe are a serious threat to the commodity, said the chairman of Italian premium coffee maker illycaffe SpA, who expects prices to begin taking a toll on production in coming years.
To adapt, the industry should focus on premium bean production, illycaffe’s chairman, Andrea Illy, told Reuters in an interview on Wednesday.
“You would never even imagine thinking about basing the price of a bottle of wine on the price of grapes,” he said. “You would price upon the area in which it is produced, on the excellence of the grapes, on the reputation of the winery, upon the aging, upon the care of processing — all other factors than the cost of grapes.”
Global coffee production is likely to rise to about 172 million bags in 2018/19, up from nearly 160 million bags this year, he said. That would represent a continuation of the current glut. Supply could, however, begin falling in 2019/20 as low prices force farmers to abandon coffee or reduce field investments increasingly necessary to cope with climate change, which is widely expected to damage global production.
Coffee futures sank last month to a 12-1/2-year low of 92 cents per pound amid a record Brazilian crop. Illy said that price was far too low.
“We could sustain a position of $1.50 (but) $1.00 is too low,” he said, speaking on the sidelines of the Ernesto Illy International Coffee Award ceremony in New York.
At these levels, “there might be growers going out of business, there will be growers converting to other crops — we create the conditions for a deficit a few years down the road and another price spike,” he said.
Coffee companies, he said, should therefore avoid the example of the soft drink industry, which focuses on mass, cheap production. Such an approach would continue to drive down prices even further below the cost of production and eventually force farmers out of business.
Nestle SA is the largest global coffee company and in August closed a $7.2 billion licensing deal to market Starbucks Corp packaged coffees globally.
Runner-up is JAB Holding Co which owns companies including Peet’s Coffee & Tea, Krispy Kreme Doughnuts, and Keurig Green Mountain. In January, Keurig struck a $21 billion deal to combine with soda maker Dr. Pepper Snapple Group Inc.
Both Nestle and JAB have expressed interest in buying illycaffe, which Illy has rebuffed. — Reuters

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