G20 talks overshadowed by Ukraine war as host Indonesia seeks consensus

July 15, 2022 | 1:43 pm

52201604726_54ab33d69a_k — The G20 Foreign Ministers’ Meeting in Bali, Indonesia, on July 8, 2022. — US State Department/Ron Przysucha

NUSA DUA, Indonesia — G20 finance leaders meeting in Bali must make progress tackling the global economic threats sparked by Russia’s war in Ukraine or the humanitarian consequences would be catastrophic, host Indonesia said on Friday.

Some Western ministers blasted Russian officials attending the talks, with US Treasury Secretary Janet Yellen saying Russia’s “brutal and unjust war” was solely responsible for the economic crisis the world now faced.

Finance leaders from the Group of 20 major economies are meeting on the resort island, as host Indonesia tries to find common ground in a group frayed by the Ukraine war and rising economic pressures from soaring inflation.

Russia’s invasion of Ukraine, which the Kremlin calls a “special military operation,” has overshadowed recent G20 meetings, including last week’s gathering of foreign ministers.

Indonesian Finance Minister Sri Mulyani Indrawati said the world had high hopes the group could find a solution to the threat of war, rising commodity prices and the spillover effects on the ability of low-income countries to repay debt.

“We are acutely aware that the cost of our failure to work together is more than we can afford. The humanitarian consequences for the world, and especially for many low income countries would be catastrophic,” she said.

G20 members include Western countries that have imposed sanctions on Russia and accuse it of war crimes in Ukraine — which Moscow denies — as well as nations like China, India and South Africa, which have been more muted in their responses.

Ms. Sri Mulyani called for G20 members to talk less about politics and “build bridges between each other” to deliver more technical decisions and concrete action.

Ms. Yellen said Russian finance officials at the meeting shared responsibility for the “horrific consequences” of the war.

“By starting this war, Russia is solely responsible for negative spillovers to the global economy, particularly higher commodity prices,” Ms. Yellen said.

Russian Deputy Finance Minister Timur Maksimov was attending the meetings in Bali, while Russian Finance Minister Anton Siluanov was participating virtually at the time, a source familiar with the matter said.

Mr. Maksimov addressed the gathering and there was no walk out by other leaders, the source said.

Western countries have repeatedly said there cannot be “business as usual” at the G20 meetings due to Russia’s presence.

Canadian Finance Minister Chrystia Freeland told Russian officials that she held them personally responsible for “war crimes” committed during Russia’s war, a Western official told Reuters.

Freeland, whose maternal grandparents were born in Ukraine, told the opening G20 session that the war was the “single biggest threat to the global economy right now,” the official said.

Russian Foreign Minister Sergei Lavrov walked out of one session of a G20 meeting with his counterparts in Bali last week, following what he called “frenzied criticism” of his country over the war.

That meeting ended without a communique nor any announcements of agreements.

Ms. Yellen said one of her key objectives was to push G20 creditors, including China, to finalize debt relief for countries in debt distress. — Reuters

Some Beijing travelers asked to wear COVID monitoring bracelets, sparking outcry

July 15, 2022 | 12:49 pm

BEIJING — Some Beijing residents returning from domestic travel were asked by local authorities to wear coronavirus disease 2019 (COVID-19) monitoring bracelets, prompting widespread criticism on Chinese social media by users concerned about excessive government surveillance.

According to posts published on Wednesday evening and Thursday morning on microblogging platform Weibo, some Beijing residents returning to the capital were asked by their neighborhood committees to wear an electronic bracelet throughout the mandatory home quarantine period.

Chinese cities require those arriving from parts of China where COVID cases were found to quarantine. Authorities fit doors with movement sensors to monitor their movements but until now have not widely discussed the use of electronic bracelets.

The bracelets monitor users’ temperature and upload the data onto a phone app they had to download, the posts said.

“This bracelet can connect to the Internet, it can definitely record my whereabouts, it is basically the same as electronic fetters and handcuffs, I won’t wear this,” Weibo user Dahongmao wrote on Wednesday evening, declining to comment further when contacted by Reuters.

This post and others that shared pictures of the bracelets were removed by Thursday afternoon, as well as a related hashtag that had garnered over 30 million views, generating an animated discussion on the platform.

A community worker at Tiantongyuan, Beijing’s northern suburb, confirmed to state-backed news outlet Eastday that the measure was in effect in the neighborhood, though she called the practice “excessive.”

A Weibo post and a video published on the official account of Eastday.com was removed by Thursday afternoon.

Weibo user Dahongmao wrote on Thursday afternoon his neighborhood committee had already collected the bracelets, telling him that “there were too many complaints.”

The outcry against electronic bracelets comes at a time of growing COVID fatigue around China, with disobedience and infractions on the rise since a nationwide outbreak in March.

The Beijing government could not be immediately reached for comment after regular office hours.

Besides Beijing, several other regions and jurisdictions have introduced bracelets as a COVID control measure, or plan to do so, including Hong Kong, Henan, Inner Mongolia, and Zhejiang, according to Chinese news site Jiemian.

But data privacy concerns and the usage of COVID monitoring technology for other purposes, such as setting health codes on alert to stop protesters from congregating, has left many Chinese wary of such gadgets and apps. — Reuters

BSP signals key rate hike to fight global spillovers

July 15, 2022 | 12:36 pm

Philippine central bank Governor Felipe M. Medalla said he would not rule out another interest rate increase in August, a day after delivering a surprise 75 basis-point hike to contain inflation at a near four-year high.

“We still have room to raise depending on the inflation picture,” Mr. Medalla said in an interview with Bloomberg Television’s David Ingles on Friday, citing spillover effects from other countries for Thursday’s off-cycle decision. “The need for a 50 basis-point move in August is much less now,” he said.

Bangko Sentral ng Pilipinas (BSP) unexpectedly raised borrowing costs to 3.25%, and is now just 75 basis points away from returning rates to 2019 levels. Soaring inflation is driving central banks globally to embrace large hikes in a single sitting, with some Federal Reserve officials hinting that a far aggressive 100 basis-point move is also in play.

“We are acting on the basis of what is already happening and what we expect to happen,” Mr. Medalla said, referring to red hot inflation in the US and the Fed’s upcoming rate review. He said the BSP’s view is the Fed will raise rates by 75 basis points this month.

For the Philippines, that’s a departure from its previously stated position that it need not match the Fed’s moves like-for-like. The peso’s status as one of Asia’s worst performers this year has added to the urgency to use monetary policy tools sooner than later.

The local currency is down more than 9% against the dollar this year and adds to inflation in a country that imports goods from fuel to rice. The peso fell as much as 0.4%, trading at 56.33 to a dollar in the spot market as of 10:20 a.m. in Manila.

Mr. Medalla said if the BSP hadn’t done anything, there was a risk of inflation averaging at 4.2% in 2023, a level that’s above the central bank’s 2%-4% target range.

“The key to us is to increase the chances that we will have below 4% inflation next year,” he said. — Bloomberg

Overseas Filipino workers get a chance to win up to P500,000 with Pru Life UK

July 15, 2022 | 9:00 am

Pru Life UK rewards OFWs in achieving their financial goals and securing a better future for their families

Leading life insurer Pru Life UK is giving overseas Filipino workers (OFWs) an opportunity to win up to P500,000 with the Balikbayan Raffle-PRUTektadong OFW Special.

To join, interested OFWs can earn one raffle entry by simply signing up via www.PRUTektadongOFW.com for a free virtual financial consultation with a Pru Life UK agent once they are back in the Philippines. OFWs will be guided on how to set and achieve their financial goals, manage their finances better, and get tips on how to secure their families’ future.

Additional raffle entries will be awarded to those who will answer the OFW survey and are existing Pru Life UK OFW customers.

“Overseas Filipino Workers are our modern-day heroes and we want to give them a chance of boosting their journey to financial wellness through our Balikbayan Raffle,” Pru Life UK President and Chief Executive Officer Eng Teng Wong said. “This is one of Pru Life UK’s efforts to thank them for helping their families and the economy by sharing valuable money lessons on their journey to financial wellness through our free financial consultations.”

Aside from the P500,000 prize, qualified OFWs can also win a round-trip ticket worth P150,000 to any domestic or international destination of their choice in the grand draw on August 5. Pru Life UK will also give away ten (10) Puregold vouchers worth P5,000 for each monthly raffle covering the three-month raffle period.

“Pru Life UK strongly advocates financial education and we want our brave OFWs to get the same chance in learning to handle their finances well despite the distance,” Mr. Wong added.

The no-cost and no-purchase required Balikbayan Raffle-PRUTektadong OFW Special Raffle will run until July 31, 2022 and is open to OFWs aged eighteen and above.

To know more about Pru Life UK and this promo, please visit www.prulifeuk.com.ph.

Spotlight is BusinessWorld’s sponsored section that allows advertisers to amplify their brand and connect with BusinessWorld’s audience by enabling them to publish their stories directly on the BusinessWorld Web site. For more information, send an email to online@bworldonline.com.

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Redefining insurance in a world of risk

July 15, 2022 | 9:00 am

It is a challenging time for everyone. Economic challenges such as rising global inflation rates pushing food and energy prices sky high, even possible stagflation in the United States and Europe, geopolitical conflict such as the war in Ukraine, and the lingering impact of the COVID-19 pandemic are creating a sobering vision of the near future.

In a developing country like the Philippines, the stakes are high and the risks are numerous. Millions of Filipino lives have been greatly affected by the pandemic, and life has only recently started to return to some semblance of normalcy. It is in these situations that the insurance sector can step up.

“Insurers often characterize themselves as the economy’s financial first responders, helping policyholders respond to and recover from some of the most challenging times in their lives by paying to repair or replace damaged properties and cover their liabilities,” global consultancy firm Deloitte said in their 2022 Insurance Industry Outlook.

The report added that trust distinguishes and elevates the roles of companies like insurers, connecting them with “the common good,” according to Deloitte’s report linking trust with economic prosperity.

“Insurers are likely to be increasingly called upon to take steps to rebuild trust, contribute to a more just and sustainable world, and build a more equitable financial services industry where profit and societal impact coexist amicably,” the report said.

In an article on their UK website about insurance themes and trends for the year, multinational professional services firm Grant Thornton echoed the sentiment, saying that consumer trust in the insurance industry has been gradually eroding in recent years, as insurers have narrowed their eligibility criteria and scope of cover. The responses by insurers to the COVID-19 pandemic, the widespread failure to pay many coronavirus claims, alongside other issues, have created the perception among consumers that the economic interests of their insurers are at odds with their own.

“Without fundamental change, we envisage a hollowing out of the industry, whereby only the healthy and/or wealthy can obtain their desired insurance. Gaps will emerge for the poorer, less healthy, and most vulnerable groups, which will likely result in increased government intervention,” Grant Thornton wrote.

“This will increase the risk transfer onto the state, something that is already being seen to an extent in the medical and social care sectors. There are however two key developments that provide insurers with the capacity to revert the negative public image that has been adopted in recent times.”

Rebuilding and protecting the trust of consumers

Grant Thornton suggested that insurers should look towards the adoption of new technologies such as artificial intelligence, predictive analytics, and the Internet of Things to create a better, more robust foundation upon which risks can be minimized and premiums reduced. Such technologies can give insurers to gain a holistic view of their customer base and provide fair, affordable coverage. However, much of this development also relies on insurance regulators.

“The regulation of this is crucial in ensuring that vulnerable customers are not negatively impacted by such technological advances. Should developments advance over the coming year as expected, we envisage the regulators taking swift action to ensure the benefits to consumers are put first,” the firm wrote.

Another way to refocus an organization’s purpose is through the ESG agenda. “The social aspect to ESG

ESG (environmental, social and governance), focusing on equality, trust, and welfare in society, as well as privacy and data security, provides a strong foundation upon which insurers can improve public perception. Insurers must seize this opportunity to regain consumer confidence and return to its simplest form of reducing individual risk,” the firm added.

Deloitte’s report suggested the same, with the caveat that insurers also bolster trust by becoming more open and collaborative with consumers on how all the new personal data available is being gathered and utilized.

“There are additional steps individual carriers could take to build greater trust and burnish the industry’s reputation as risk managers. One way they might accomplish this is by leading efforts to come up with alternative financing mechanisms to cover a wider range of future pandemic losses, including potential public-private partnerships patterned after the one now supporting the terrorism insurance market,” Deloitte’s report said.

Furthermore, Deloitte suggested that insurers could be more proactive in ESG initiatives not only to improve their public image, but also to limit the causes of climate risk at its source, recruit a more diverse workforce and leadership team, as well as launch new products and services to alleviate coverage gaps for underserved communities.

“Since insurance ultimately comes down to a matter of trust — the consumer’s confidence that their premiums will pay off in the end if they suffer a loss — maintaining and bolstering that bond should therefore be an ongoing priority,” the firm added.

“Put trust at the forefront of your planning, strategy, and purpose, and your customers will put trust in you.” — Bjorn Biel M. Beltran

Catering to the needs of today’s insurance consumers

July 15, 2022 | 8:55 am

As consumer spending behavior and preferences are evolving due to various implications brought by the current global health crisis, health insurers are aligning their insurance solutions to cater to the changing needs of the public as well as sustain their growth in the now normal.

Since 2021, insurance experts have been advising health insurers to aid in the decision-making of consumers by providing a “safety net” that protects against future financial risk and uncertainty, and enabling digital channels to meet consumer demands while maintaining social distance for safety.

As insurers play a crucial role in the response to and recovery from the health crisis, adapting products and distribution models that provide value and support to consumers against uncertainty and risks during this unprecedented time is an essential business move.

On a positive note, a recent global survey on insurance shows that, mainly because of the pandemic, there is an increased desire for greater financial security that brought about a significant interest in obtaining health and life insurance.

In the Philippines, the COVID-19 pandemic has left many Filipinos jobless and without a source of income. The government has recorded 10% of the working population unemployed as many businesses were forced to shut down in 2020. It decreased to 7.8% in 2021, and is expected to further improve in 2022. This transition phase pushes Filipino families to cope up and realign their finances, which even makes the role of insurance providers more vital.

Analysts talked about how the insurers’ responses to the pandemic-brought financial implications have the potential to either ramp-up or decrease public confidence in the industry. As financial stress correlates with dissatisfaction, local insurance companies shared similar business strategies that they deemed efficient in raising, maintaining, and satisfying the consumers of health insurance today.

Filipinos remain committed in prioritizing and protecting their health by buying health riders to supplement their current insurance policies. The younger generation, in particular, has been learning the value of prioritization to stay resilient amid crises.

Compared to older generations, today’s young adults could also be considered as more cognizant of the impact of COVID-19 as a public health crisis and thus, they are taking the necessary steps to protect themselves not only from the disease but also from its financial burden.

With the quarantine and lockdown measures, majority of business ventures shifted to virtual contactless setting, including the insurance sector which has seen an increase in policy holders and potential consumers who prefer to connect with insurance agents via online platforms.

Earlier this year, the Insurance Commission issued rules aimed at relaxing regulations to allow the continued operations of insurers, especially those providing health products and services. One of these rules, which has been extended until the end of this year, authorizes the sale of insurance products through digital tools as they became a much more viable path to move forward even beyond the pandemic.

As critical as it is for insurers to quickly adapt their operations to the constraints imposed due to the health crisis, it is also important that they adapt a gender lens with their branding and engagement strategies, according to the International Finance Corporation (IFC), a global development institution providing investment advisory and asset-management focused exclusively on the private sector in developing countries.

In addition, as the public at large is anxious to find information and solutions to help them cope during this challenging time, IFC emphasized that it is even more important that insurers’ current communications and engagement strategies are consistent, present at all times, rooted in empathy, and that they meet the needs of women who now bear even greater responsibility for family caretaking.

Industry experts also suggest achieving greater outreach through partnerships for the distribution and accessibility of insurance products. They indicated that e-commerce platforms, retailers, and wholesalers can provide a powerful way for insurance companies to reach individuals and micro, small and medium enterprises (MSMEs) as these partners have a strong digital presence and a large consumer base at present.

Meanwhile, Ernst & Young Global Limited, a global leader in assurance and business consultancy, revealed on their 2021 Global Insurance Consumer Survey that a total of 46% survey respondents restated their awareness of how their insurance providers participate in CSR (corporate social responsibility) matters and as much as 58% of the respondents use company websites to understand and look for an insurance company’s commitment to CSR efforts.

This proves that a company’s commitment to CSR initiatives, such as labor practices, income inequality, and gender income inequality are important metrics that influence consumers’ purchase decision of health insurance.

The report also recommended realigning and innovating insurance products to fit consumers’ current expectations for pricing, bundling of policies, and payment options — this may vary as each generation of policy holders reveals unique needs.

Though consumer needs and preferences are evolving due to the pandemic, they are unlikely to revert to pre-pandemic demands, as insurance analysts foreseen.

Yet, local insurers, now more than ever, understand that investing in health insurance to acquire peace of mind in these changing times is the first step Filipinos take to attain a financially secure and healthy life after COVID-19. — Allyana A. Almonte

Insurance to be reshaped towards purposeful growth

July 15, 2022 | 8:50 am

Globally, the insurance industry is seen to be on the verge of a “dynamic and purpose-driven moment” this year, as multinational professional services firm Ernst & Young (EY) noted in its latest “Global Insurance Outlook.”

“We believe the industry is poised for a period of purposeful growth, despite daunting macroeconomic and structural challenges, fierce competition and ongoing tech-driven disruptions,” the outlook’s authors wrote in the report.

Driving that dynamic moment are three trends that are expected to reshape the insurance market, as well as open opportunities for insurers to make more meaningful decisions for their clients and workforces.

“The decisions and actions leaders take today can meaningfully influence the future of the industry — and the lives and livelihoods of billions of people around the globe,” EY’s Global Insurance leadership team wrote in a message in the outlook.

Recognizing the rise of open finance and the ecosystems of financial solutions it enables, EY sees an emergence of open insurance, where insurance-related data and other types of personal information are shared among different organizations through application programming interfaces (APIs) that connect disparate systems.

Like how open finance can transform the delivery of financial services, open insurance makes it possible for insurers to tailor-fit policies or packages for customers.

“Across all lines of business, there is increased demand for more affordable, transparent and customized insurance that better suits evolving conditions and can be easily adjusted as the needs change,” EY’s outlook read. “Customers are increasingly willing to buy that insurance from other companies (e.g., retailers, other financial institutions, tech platforms) that offer intuitive personalized experiences.”

In addition, global professional services company Accenture recognized that technology, as it is integrated within traditional insurance products, will enable the personalization of solutions.

“Wearables and Internet of Things (IoT) sensors are creating new ways to track, price and promote health, home safety and security and auto insurance solutions,” Accenture wrote in its recent analysis of the insurance revenue landscape in the future. “Technology allows for increased personalization of products, services and rates, but insurers need to be prepared to operate on the right platforms and with the right partners to enable that personalization.”

Whereas before technology and automation is considered to cause job reductions in the insurance industry, at present the industry is set to have a more nuanced and interdependent human-tech dynamic — the second trend EY spotted.

“The consensus among forward-looking executives is that human talent is every bit as important to future success as AI, machine learning and modernized processing platforms, the firm’s outlook read. “Yet the scarcity of key skills and “the Great Resignation” mean that insurers must address the traditional view of the industry as slow-moving and dull if they are to become employers of choice.”

In attracting talent, EY recommends insurers to take stronger positions on social issues that matter most to rising generations of workers (e.g., diversity and inclusion, sustainability); provide meaningful work; and enhance their benefits, performance recognition and compensation models.

“Younger workers are also looking for more purposeful work, which gives an advantage to insurers that can articulate a clear story about how their products and services benefit society as a whole,” EY added.

Also, Accenture observed that the coronavirus pandemic and “the Great Resignation” are creating the pressures and shifts that will force insurers to disrupt long-standing apprenticeship models for skilling in essential functions like claims and underwriting. These forces are also pressing the need to attract and retain talent that are critical in roles critical to insurance workforce transformation like technology, analytics, and actuarial.

“Insurers will always need humans. But with fewer workers, they increasingly need humans enabled by machines, transforming how work gets done regardless of who’s doing it or where,” Kenneth Saldanha, senior managing director – Global Insurance lead at Accenture, wrote on the company’s website.

As insurers are seen to be seriously considering the impact of their actions to the environment and society around them, sustainability, the third trend, brings “a historical opportunity” for the industry to purposefully lead, innovate, and grow.

“Previous discussions about sustainability were largely theoretical and centered on making public pledges of support. Today, however, leading insurers are taking tangible steps and adopting hard metrics to address the full range of environmental, social and governance (ESG) issues and opportunities,” EY’s outlook added.

For most insurers, the outlook continued, the focus is squarely on the “E” in ESG, as climate change is expected to have the biggest and most immediate impact on the industry’s financial performance.

Accenture even recognizes climate change to drive innovation in the insurance industry, in spite of the growing volatility of environmental catastrophes and damage linked to climate change being a complex risk to insure.

“Technology can help shape and improve that response with more sophisticated risk modeling, enabled by digital technology such as AI and analytics. Insurers can improve pre- and post-incident handling around climate-related disasters,” Accenture’s analysis read.

Social issues, nevertheless, are also needing urgent responses, and so insurers must lay out their strategy with specific targets and quantifiable performance metrics, EY advised.

“Within a broader ESG strategy, insurers must identify priority focus areas, clarify why they are allocating resources to them, and determine what benefits they expect to achieve,” the outlook’s authors wrote. — Adrian Paul B. Conoza

Merging insurance with technology

July 15, 2022 | 8:45 am

The insurance industry has also been disrupted by the COVID-19 pandemic. Like almost all industries adapting to the new normal, the sector was also urged to innovate.

For one, to maintain their connection with consumers amid the lockdown restrictions and safety concerns, insurance companies were pushed to shift to the digital space. Hence, the number of consumers who moved online to connect with their agents increase from 25% prior to the pandemic to 57% since the beginning of the pandemic, according to professional services firm EY Philippines.

“One key insight here is that insurance companies have the opportunity to re-examine and adjust their digital distribution and communication offerings to address shifting consumer preferences,” SGV (EY Philippines) Consulting Partner Charisse Rossielin Cruz noted in an article published on the firm’s website.

Given the urge for innovation in the sector during and much likely beyond the pandemic, what does this mean for insurtech?

According to management consulting firm Boston Consulting Group, as the need for digital transformation in insurance sped up amid the pandemic, global insurtech funding rose to $7.5 billion in 2020, increasing 21% from the year prior.

“The record-breaking amount of equity funding invested in the space, as well as the large number of M&A deals, IPOs, and strategic reinsurer contributions, show that technology plays a key role in the evolution of the industry,” the firm said. “It is now time for incumbent insurers to accelerate their digital transformations and acknowledge the strategic role that insurtechs can play in helping them rapidly adapt to, and survive in, a post-COVID-19 world.”

Merging insurance with technology, insurtech refers to the utilization of innovations or technologies that could support in enhancing business operations and efficiency as well as the customer experience in the insurance sector.

In the Philippines, where access to some financial services is a challenge for many Filipinos, it was thought that insurtech could support in improving insurance penetration. BusinessWorld reported last month that some financial technology (fintech) firms were looking to offer microinsurance products via online channels or insurtech to help raise the insurance penetration in the country.

“Interestingly enough, the Philippines scored very low on insurance penetration, but higher on microinsurance penetration. Our job is to really enhance and further penetrate the microinsurance level of the Philippines,” Mario Berta, country manager at insurtech firm Igloo, was quoted as saying.

For Mr. Berta, the insurtech market must be developed, which could help increase the insurance penetration in the Philippines. — Chelsey Keith P. Ignacio

Get up to 65% off at Tefal’s first ever Lazada Super Brand Day

July 15, 2022 | 8:00 am

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BSP delivers its biggest rate hike ever

July 15, 2022 | 12:33 am

Moon-skyline-buildings — A bright July supermoon is seen over Metro Manila, July 14. — PHILIPPINE STAR/ MIGUEL DE GUZMAN

By Keisha B. Ta-asan

THE BANGKO SENTRAL ng Pilipinas (BSP) unexpectedly raised its benchmark interest rates by 75 basis points (bps) on Thursday, but left the door open for further tightening as it seeks to tame the fastest inflation in nearly four years.

BSP Governor Felipe M. Medalla said the Monetary Board raised its key rate to 3.25%, effective immediately, which brought back the rate to the March 2020 level. This latest move is the BSP’s biggest rate hike ever.

Rates on the overnight deposit and lending facilities were also hiked by 75 bps to 2.75% and 3.75%, respectively.

“In raising the policy interest rate anew, the Monetary Board recognized that a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy settings,” Mr. Medalla said in a Facebook Live on Thursday morning.

The BSP’s surprise move came ahead of its regular policy meeting scheduled on Aug. 18, and follows two 25-bp rate hikes each in May and June. The Monetary Board has raised benchmark interest rates by a total of 125 bps so far this year.

This was also the central bank’s first off-cycle move since April 16, 2020, when it cut rates by 50 bps to 2.75% to support the pandemic-hit economy.

“By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook. In particular, policy action is intended to help manage spillovers from other countries that could potentially disanchor inflation expectations,” Mr. Medalla said.

The BSP is ready “to take further necessary actions to steer inflation towards a target-consistent path over the medium term,” he added.

Mr. Medalla said the BSP will still hold a policy meeting on Aug. 18.

Inflation rose by 6.1% year on year in June, the fastest in nearly four years and exceeded the central bank’s 2-4% target band for a third straight month. The average inflation rate in the first six months is 4.4%, still below the BSP’s full-year forecast of 5%.

BSP Deputy Governor Francisco G. Dakila, Jr. said any revisions on inflation targets will be done in the Aug. 18 meeting.

“It is because, again, we would want to incorporate the latest data… the updated numbers on inflation, as well as inflation expectations and on GDP (gross domestic product) growth,” he said.

The Philippine Statistics Authority (PSA) is scheduled to release July inflation data on Aug. 5, and second-quarter GDP data on Aug. 9.

Mr. Dakila said the initial results of the BSP’s partial survey of private sector economists showed higher mean inflation forecasts for this year (5.4% from 4.9% previously) and 2023 (4.4% from 3.9% previously).

The policy move should help temper the risks to the inflation outlook, he said.

Also, the BSP intends to cut the reserve requirement ratio (RRR) to single digits.

“The adjustments in the reserve requirements are meant to be not indicative of any change in the monetary policy stance but it will be an operational adjustment,” Mr. Dakila said.

Cutting the RRR would give banks more money to lend and reduce the cash holdings that they keep in their vaults as standby funds that do not generate returns.

ECONOMIC OUTLOOK
Mr. Medalla also said the favorable growth conditions this year “suggests that the domestic economy can accommodate a further tightening of monetary policy.”

In a separate statement, Finance Secretary Benjamin E. Diokno said the Philippine economy is robust enough to absorb the policy rate hike.

“The growth outlook is seen to be supported by the maintenance of loosened quarantine restrictions as well as the positive impact of structural reforms… The National Government will continue to adopt a gradual and calibrated path of fiscal consolidation to help preserve the strong growth momentum,” Mr. Diokno, a former BSP governor, said.

The economy expanded by a faster-than-expected 8.3% in the first quarter. The Development Budget Coordination Committee (DBCC) is targeting 6.5-7.5% GDP growth this year.

BSP’s Mr. Dakila said the GDP targets for this year are achievable, adding that second-quarter growth is “very likely to be strong or may even be stronger than the first-quarter numbers.”

While GDP may slow down a bit due to higher interest rates, Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said “it might be worse if inflation goes up further.”

“The economy managed to grow by 6.3% and 6.1% in 2018 and 2019 even if the policy rate was above 4%. A prolonged period of high inflation will eventually hurt consumers, which will likely affect the economy more severely compared to higher interest rates,” Mr. Neri said in a statement.

Former BSP Deputy Governor Diwa C. Guinigundo said he was not surprised that the central bank came out “appropriately aggressive in an off-cycle meeting.”

“It’s timely for the BSP to focus on stabilizing inflation and the exchange rate because both would also affect market rates. Uncertainty as to the direction of policy when inflation is hitting historic highs and the peso is performing poorly could also push interest rates and consequently debt servicing costs,” he said in a Viber message.

MORE RATE HIKES
The central bank may increase policy rates further this year as it continues its fight against inflation, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail note.

“BSP Governor Medalla will need to sustain the recent hawkish rhetoric to re-anchor inflation expectations and establish the bank’s commitment to fighting inflation,” Mr. Mapa said.

“We expect BSP to hike again at least one more time in 3Q with the possibility of further tightening should inflation continue to remain stubbornly high. The peso will get an immediate reprieve in the short term but chronic trade deficits could mean that any rally in the currency may be capped,” he added.

Makoto Tsuchiya, assistant economist at Oxford Economics, said the BSP may raise rates by 50 bps at the August meeting to end the year at 3.75%. Inflation is expected to peak above 8% in the fourth quarter, averaging 5.9% for the year, he added.

“But if the (Philippine peso) were to depreciate sharply from here or inflation surprised on the upside, this would justify further tightening this year. For now, we expect that with global trade set to slow and a negative output gap, the BSP will be conscious to not stifle the recovery in domestic demand,” he said in a note.

PESO RECOVERS
The Philippine peso, which had hit a record low early this week versus the US dollar, recovered some lost ground.

The local unit closed at P56.15 per dollar on Thursday, gaining 11 centavos from its P56.26 finish on Wednesday, based on Bankers Association of the Philippines data.

Year to date, the local unit has weakened by 10.09% or by P5.15 from its close of P51 versus the dollar on Dec. 31, 2021.

The peso is the worst-performing currency in Southeast Asia this year as the greenback continues to strengthen on expectations for faster Federal Reserve policy tightening.

The Fed is seen stepping up its tightening campaign with a supersized 100-basis-point rate hike this month after a report showed inflation racing at four-decade highs.

The BSP’s move was meant to support or at least stabilize the peso exchange rate, said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. in Manila.

A weak peso adds further pressure on inflation, threatening to derail recovery of the consumption-driven domestic economy.

“More rate hikes are still possible, if needed, as a function of any further Fed rate hikes to bring down elevated inflation,” Mr. Ricafort said. — with Reuters

Debt-to-GDP ratio still manageable — DoF

July 15, 2022 | 12:32 am

By Diego Gabriel C. Robles

AMID CONCERNS over the Philippines’ ballooning debt, Finance Secretary Benjamin E. Diokno said the debt-to-gross domestic product (GDP) ratio is “not the sole criterion that matters” in assessing the economy’s health.

Mr. Diokno told reporters that the country’s debt-to-GDP ratio, which stood at 63.5% as of end-March, is still manageable.

He made the statement after sharing Bloomberg’s Sovereign Debt Vulnerability Ranking, which included countries with debt-to-GDP ratios lower than the Philippines such as Nigeria (37.4%), Turkey (43.7%) and Mexico (58.4%).

The Philippines was not on the list of 25 countries with the highest default risk this year.

The Department of Finance (DoF) chief said macroeconomic fundamentals, demographic profile, resiliency, and quality of political institutions should also be considered in assessing an economy’s health.

“The fiscal and monetary authorities are in control. The debt-to-GDP ratio is manageable. The banking system is sound and more than adequately capitalized; [nonperforming loans], which [are] low, continues to fall. The banking industry has [built] in enough buffers,” Mr. Diokno said.

Economic managers are aiming to bring down the debt-to-GDP ratio to 61.8% by yearend. The debt-to-GDP ratio is expected to steadily drop to 61.3% by next year all the way to 52.5% by 2028.

Mr. Diokno also noted the country’s economic prospects are “bright” and external sector remains robust.

“[Our] gross international reserves [are] more than enough and there is a steady structural inflow of foreign exchange [from] OFW remittances, BPO receipts, [and] rising exports,” he added.

Preliminary data from the BSP showed the country’s gross international reserves stood at $101.983 billion at end-June, falling 3.5% from the record $105.762-billion level seen in June 2021.

Overseas Filipino workers’ (OFWs) remittances jumped by 3.9% in April to $2.395 billion.

Meanwhile, exports rose by 6.2% year on year to $6.310 billion in May but were offset by imports that grew by 31.4% annually to $11.989 billion.

The Development Budget Coordination Committee (DBCC) retained this year’s export growth target to 7%, but increased import growth goal to 18% from 15% previously.

The economy is expected to grow by 6.5-7.5% this year, and by 6.5-8% annually from 2023 to 2028.

DEBT LEVELS
The national debt can return to pre-pandemic levels if there is faster growth, favorable interest rate conditions, and a longer time horizon, a researcher from the Philippine Institute for Development Studies (PIDS) said.

“If we assume that GDP growth, real interest rate, and the exchange rate are fixed and constant, then the only major variable that the government has a handle on is the primary balance,” said John Paul Corpus, PIDS supervising research specialist, on a PIDS webinar on Thursday.

Primary balance is the difference between a government’s revenue and its non-interest expenditure.

“The government must improve its primary balance, either by cutting primary spending or raising more revenues, or doing a combination of both,” he said.

Nonetheless, quickly returning would be challenging as “fiscal policy might need to continue to be conducive to supporting the country’s economic recovery, especially given the difficult global economic environment,” Mr. Corpus added.

Mr. Diokno said last week that it is not “crucial” to return to the 39.6% debt-to-GDP ratio seen as of end-2019, considering the country’s experience at the height of the coronavirus pandemic.

“We have to prioritize growth first rather than going back to that number,” he said.

OUTGROWING DEBT
The National Government’s outstanding debt slipped by 2.1% to P12.5 trillion as of end-May.

“It may not be something to worry about for some but it is something to worry about for ordinary people who directly feel its impact. We can outgrow debt only if all sectors and stakeholders will cooperate and coordinate,” John Paolo R. Rivera, an economist from the Asian Institute of Management, said.

Analysts agreed that outgrowing the debt would require at least 6% annual GDP growth in the next six years.

“Debt is expected to remain elevated with the borrowing and spending that the government will need to do to support recovery amid inflation headwinds. As such, sustained growth will give it some room to do this while balancing fiscal prudence,” said Robert Dan J. Roces, chief economist at Security Bank Corp.

Leonardo A. Lanzona, director of the Ateneo Center for Economic Research and Development, said the government should still prioritize investing in human capital over debt repayment.

“These should mean significant investments in education, housing, and nutrition, which are investments needed to place the economy back [on] its feet… Ignoring these in favor of short-term maturing investments for economic recovery and debt repayments can force the economy to drift away further from the initial human capital stocks before the pandemic, placing us in a much more difficult position in the long term,” he said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said fiscal discipline is needed to cut the debt-to-GDP ratio, which includes rationalizing government spending.

“These were done by the economic teams of the previous three administrations and were successful in reducing the debt-to-GDP ratio and even led to credit rating upgrades,” Mr. Ricafort said.

For Senior Economist Nicholas Antonio T. Mapa of ING Bank N.V. Manila Branch, “the longer we have a [debt-to-GDP] ratio above 60%, the more we will be susceptible to ratings action.”

“Fitch [Ratings] noted in its recent report that they had concerns about the uncertainty [of] medium-term growth prospects as well as possible challenges in unwinding the policy response to the health crisis and bringing government debt on a firm downward path,” he said via e-mail.

Fitch Ratings in February kept the country’s investment grade “BBB” rating, but kept the “negative” outlook as it flagged uncertainties in the country’s medium-term growth and hurdles to bringing down debt. A negative outlook means a downgrade is possible within the next 12 to 18 months.

S&P Global Ratings last affirmed the country’s “BBB+” rating with a stable outlook in May 2021. Meanwhile, Moody’s last affirmed its “Baa2” credit rating with a stable outlook for the Philippines in July 2020.

PHL vehicle sales accelerate in June

July 15, 2022 | 12:31 am

cars-vehicles-traffic — PHILIPPINE STAR/EDD GUMBAN

VEHICLE SALES in the Philippines accelerated by 27% in June, driven by increased demand for commercial vehicles.

A joint report from the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association, Inc. (TMA) showed total vehicle sales reached 28,601 units in June, up by 26.8% from 22,550 units sold in the same month last year.

Month on month, total vehicle sales increased by 8.5% from May’s 26,370 units.

Commercial vehicle sales surged by 39.4% to 21,144 units in June, from 15,168 a year ago. This was driven by a 55% rise in sales of Asian utility vehicles and a 38% jump in sales of light commercial vehicles.

Passenger vehicle sales remained sluggish, inching up by 1% to 7,457 units in June from 7,382 a year ago.

“The automotive industry recovery is progressing as new motor vehicle sales reached an upward growth trajectory in June driven by the pent-up demand from consumers amid the less-than-ideal economic conditions recorded in the same period,” CAMPI President Rommel R. Gutierrez said in a statement.

For the first six months, the industry sold 154,874 units, up by 16.7% from 132,767 units sold in the same period last year.

Sales of commercial vehicles rose by 28.2% to 115,871 units in the first six months, offsetting the 8% decline in passenger car sales to 39,003.

The CAMPI-TMA report showed that Toyota Motor Philippines Corp. had the highest market share for the January to June period with 51.71% after selling 80,090 units.

Mitsubishi Motors Philippines Corp. had the second-highest market share at 13.39% with 20,734 units sold.

It was followed by Nissan Philippines, Inc. (7.22% or 11,188 sold units); Suzuki Phils., Inc. (6.36% or 9,851 sold units); and Ford Motor Co. Phils. Inc. (5.78% or 8,956 units sold).

Mr. Gutierrez is hopeful that vehicle sales momentum will be sustained in the next few months.

“The industry is optimistic of sustaining motor vehicle sales in its current pre-pandemic trendline in the coming months, albeit challenging amid the ongoing headwinds to the economic recovery, which continue to affect consumer confidence and overall employment,” Mr. Gutierrez said.

CAMPI previously announced that it is targeting to sell 336,000 units in 2022, 17% higher than the 268,488 units sold in 2021. — Revin Mikhael D. Ochave

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