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Further rate cut seen needed in second half if economic recovery stalls 

A SLOWER economic recovery resulting from the return to restrictive lockdowns could drive the Bangko Sentral ng Pilipinas (BSP) to cut policy rates once more in the second half, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) said Wednesday.

“With still a weak economy, BSP will likely keep policy rates unchanged in H1, unless the new ECQ (enhanced community quarantine) significantly slows the economy further, which may merit a rate cut,” FMIC and UA&P said in their March edition of The Market Call.

They said one major factor that prevents the central bank from bringing down benchmark interest rates further is high inflation, which exceeded the official 2-4% target band in February with a reading of 4.7%. It projected inflation to have risen to 4.9% in March, before tapering off starting April.

“The BSP holds the position that the current upticks will prove transitory and inflation will moderate significantly in H2,” it said. 

In its second policy-setting meeting, the Monetary Board maintained the overnight reverse repurchase rate at a record low of 2%. Rates for the overnight lending and deposit facilities were also maintained at 2.5% and 1.5%, respectively.

Metro Manila, Bulacan, Cavite, Laguna and Rizal have been placed under the strictest form of lockdown for the week to April 4 in a bid to curb the resurgence of coronavirus cases.

The Health department reported 9,296 new infections Tuesday, bringing the total number to 741,181. Deaths have totaled 13,191 so far.

FMIC and UA&P said the pace of the economic recovery will depend on how well the government executes its vaccination rollout. A successful program is expected to boost the confidence of investors, businesses and consumers.

It said consumer spending, which is equivalent to 70% of economic output, will remain dampened over the near term as localized lockdowns are implemented. However, this indicator will pick up once households start shopping more freely once the daily case count falls.

It said government spending — which is also a major growth driver — should have also gained traction in February as agencies start spending their 2021 budgets.

The Bureau of the Treasury estimates that government spending rose 37% from a year earlier to P335.5 billion in February, bringing the two-month expenditure total to P610 billion, up 18%. 

Economic managers have set a 6.5-7.5% growth target for this year, following 2020’s record 9.5% contraction. — Beatrice M. Laforga

DTI seeks June trade deal signing with South Korea to ensure treaty approved before polls

THE Department of Trade and Industry (DTI) is pushing for a June conclusion to negotiations for a free trade agreement with South Korea, which would give the Philippines sufficient time to complete its domestic approval process before national elections next year.

Trade representatives from the Philippines and South Korea will meet in the first half of April to address remaining issues on the market access for goods, Trade Undersecretary Ceferino S. Rodolfo said in an online news conference last week.

“On the Philippine side, our aim is to be able to conclude discussions and resolve all divergent issues by end of June this year,” he said.

The countries failed to sign a deal at the ASEAN-Republic of Korea Commemorative Summit in 2019. Talks had stalled on items like bananas, for which Philippine producers are seeking lower tariffs, and South Korean auto exports, for which Seoul is seeking greater access.

Mr. Rodolfo added that the pandemic and the absence of a chief negotiator on the South Korean side for some time had further delayed talks last year.

He said that the Philippine side is hoping for conclusion to talks soon, as legal review and executive concurrence from the President will take several months. 

“Next year, ipe-present sa Congress. By that time, election na so parang ang hirap na mapa-approve so para sa atin sana we would like to have it soon (It should go before Congress by next year, before the election, which could make approval difficult. Which is why we are pushing for a deal soon),” he said.

The Philippines is also starting informal talks with members of a transpacific trade deal, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, as part of the process of indicating interest to join the agreement.

The Trade department is also in talks with India, Chile, Pakistan, and Turkey for potential preferential trade agreements. — Jenina P. Ibañez

Hog repopulation to start in 8 ASF-affected regions

THE GOVERNMENT will roll out its program to restore hog numbers in eight regions, including parts of the country where African Swine Fever (ASF) has been dormant for at least 90 days, as well as in areas that reported no cases but which are adjacent to infected zones.

Bureau of Animal Industry Director Reildrin G. Morales said in a statement that the P600-million repopulation program will be initially implemented in so-called “yellow” zones, where ASF has been dormant but under surveillance for the disease, and “pink” zones, those areas adjoining infected zones which had served as buffer zones to contain the outbreak.

According to Agriculture Secretary William D. Dar, the repopulation program will be implemented initially via the limited placement of pigs to check whether the virus is still present in the area.

Mr. Dar said the program is expected to benefit 8,000 backyard raisers organized into 500 clusters.

The program will launch in the regions of Ilocos, Cagayan Valley, Central Luzon, Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon), Bicol, Davao, Soccsksargen (South Cotabato, Cotabato, Sultan Kudarat, Sarangani, and General Santos City), and CAR (Cordillera Administrative Region).

Mr. Dar said ASF incidence is currently declining.

“As of March 26, the country has registered 253 cases, versus 358 cases in January 2021, 330 cases in February 2021, and the highest level at 1,773 cases in August 2020,” Mr. Dar said.

Agriculture Undersecretary William C. Medrano said the beneficiaries will receive three to five piglets, feed, veterinary drugs, biologics, and antiviral agents for the six-month fattening period.

The hog repopulation program has been allocated P400 million for the so-called “sentinel” initiative — the introduction of a small number of animals to check for the continued presence of ASF — and P200 million for the multiplier breeder component, which will ensure a continuing source of piglets. — Revin Mikhael D. Ochave

CoA rejects more tax incentives granted to textile firms

THE Commission on Audit (CoA) rejected another P376.6 million worth of tax incentives illegally granted to six textile firms by the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (OSS) between 2008 and 2014, the Department of Finance (DoF) said.

The DoF said in a statement Wednesday that CoA issued notices of disallowances to Capital-Roll Knit Corp. (CRC), Uni-Glory’s Knitting Corp. (UKC), Primeknit Manufacturing Corp. (PMC), Tai-Cheng Integrated Resource, Inc. (TICIRI), Miskhu Industrial Corp. (MIC) and Universal Pacific Knitting Mills, Inc. (UPKM). The companies were earlier found to have been issued tax credit certificates (TCCs), illegally.

According to a Feb. 23 report to the DoF, CoA’s findings add to the P818.6 million worth of rejected TCCs last year, bringing the total disallowances to P1.195 billion.

The DoF has been releasing CoA findings on textile incentives since July, when evidence started emerging that the tax credits were unwarranted.

CoA disallowed TCCs issued to CRC worth P111.3 million. The company now has P455.9 million worth of rejected tax credits to date.

The government is set to void P55.48 million in further tax perks previously issued to UKC, bringing the total to P115.32 million so far.

Disallowed tax credits to PMC were worth P60.83 million, bringing the company’s total to P154.3 million.

Tax credits to TICIRI worth P46.83 million have also been rejected, taking the company’s overall disallowed TCCs to P141.3 million.

UPKM accounted for another P53.26 million worth of cancelled tax perks, bringing its total to P81.59 million, while the MIC racked up P48.94 million worth of new disallowances, raising its overall tally to P80.11 million.

The OSS is an inter-agency body run by the DoF, Board of Investments (BoI), Bureau of Internal Revenue and Customs, to process applications for TCCs and duty drawbacks.

Tax credits are given to exporters and manufacturers of products for export, which are registered with BoI. Proof of duties and taxes on raw materials and supplies are a prerequisite for a TCC; approved applications will trigger refunds of these taxes.

The DoF formed a task force in 2018 to investigate and go after officials and firms involved in the illegal grant of tax credits.

In July 2018, the DoF also flagged P11.18 billion worth of TCCs that the OSS granted to 33 textile companies between 2008 and 2014 which were either not eligible for the benefit or allegedly non-existent. These were based on CoA findings as well. — Beatrice M. Laforga

Impact of Suez Canal blockage seen mainly in Asia-Europe trade goods, shipping costs

THE PHILIPPINES will feel the impact of the disruption of operations at the Suez Canal via the delayed flow of trade goods between Asia and Europe, as well as indirect consequences like higher shipping costs in the wake of the stranding of hundreds of merchant vessels during the weeklong blockage, analysts said.

“The recent disruptions at Suez Canal, though already being resolved lately, could result in some delays in the movement of both exports and imports of the Philippines… that pass through the Suez Canal, as a result of the additional time taken for the longer route around the African continent, with the risk of some disruptions in some parts of the global supply chain,” Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort told BusinessWorld in an e-mail Tuesday.

On March 23, the 224,000-ton Ever Given container ship blocked the Suez Canal, a key trading route connecting Europe and Asia. The incident set back the operations of hundreds of vessels. As of Monday, the vessel had been re-floated and towed away from its position blocking a narrow section of the canal.

Mr. Ricafort said that transport and shipping costs for some Philippine exports and imports will increase due to the delay to ships undertaking longer-than-expected voyages.

Mr. Ricafort added that air freight is a costly alternative to speed up the delivery of critically-needed goods.

“The key risk of this previously stuck giant vessel is the disruption of global supply chains already reeling from the impacts of the COVID-19 pandemic,” Ruben Carlo O. Asuncion, chief economist of the UnionBank of the Philippines, Inc., told BusinessWorld in an e-mail on Tuesday.

“Now that the Egyptian authorities have successfully unstuck the Ever Given, various ships and vessels are still there and waiting for their turn to go through the trade way,” he added.

According to Mr. Asuncion, normal transit time through the canal is 16 hours.

Yanting Zhou, a senior economist at energy consultancy firm Wood Mackenzie, said on Wednesday that it will take at least one more week to clear the backlog, which will result in the loss of two weeks’ disruption to delivery timetables.

“This poses a risk to supply chains given that this time period is close to the inventory days for some manufacturers and will have a ripple effect on many others,” Ms. Zhou was quoted as saying in Wood Mackenzie’s Asia Pacific Energy Buzz blog.

She added that the blockage will “greatly impact” industrial goods and consumer products moving between Europe and Asia.

RCBC’s Mr. Ricafort said the Philippines’ oil, petroleum and fuel imports are not affected since they do not pass through the Suez Canal.

“But the Philippines could still be indirectly affected by any disruption in some parts of the global supply chain as well as any pick up in global shipping costs,” he added. — Angelica Y. Yang

IPOPHL to move mediation services online in April

THE intellectual property office said it will migrate most of its mediation services online starting in April to facilitate rulings on cases involving in cross-border intellectual property (IP) disputes.

According to circulars issued by the Intellectual Property Office of the Philippines (IPOPHL), the new mediation format is set to take effect on April 3.

The changes are expected to make its mediation services more attractive to small companies and foreign stakeholders working to resolve IP disputes, IPOPHL Director General Rowel S. Barba said in a statement Wednesday.

Some offline or face-to-face mediation sessions will still be allowed if approved by the agency’s Bureau of Legal Affairs.

IPOPHL Bureau of Legal Affairs Director Nathaniel S. Arevalo said that the shift could make IPOPHL the first agency to implement end-to-end online mediation, from filing to settlement agreement submissions or termination.

The agency first offered online mediation options in May last year to continue delivering services during the most restrictive phase of the 2020 lockdown.

Meanwhile, IPOPHL said that IP disputes could again be referred to the World Intellectual Property Organization’s (WIPO) Arbitration and Mediation Center. The center helps parties choose mediators and offers facilitation services.

The center waived its $100 administration fee and matched its mediators fee to IPOPHL’s P4,000.

“The waived fee will encourage more parties to avail of the WIPO Option by paying the same amount as that of IPOPHL,” Mr. Arevalo said.

WIPO can help resolve disputes related to trademark opposition, administrative complaints for violation of IP rights, disputes involving technology transfer payments and disputes relating to the terms of a license involving the author’s rights to public performance or other communication of his or her work. — Jenina P. Ibañez

LinkedIn to offer skills-development courses with Microsoft 

PROFESSIONAL NETWORKING site LinkedIn Corp. said it entered into a partnership with Microsoft Corp. to offer free courses and affordable certifications to boost participants’ employability in what it characterized as a “skills-based economy.”

In a statement Wednesday, LinkedIn said it will offer the LinkedIn Learning and Microsoft Learn courses until the end of the year. The free online courses and low-cost certifications are configured to suit the 10 most in-demand jobs as ranked by LinkedIn.

LinkedIn is also launching LinkedIn Skills Path, which helps recruiters connect and assess with the LinkedIn Learning courses and lead them to hire suitable candidates.

LinkedIn Managing Director and Vice-President for Asia Pacific and China Olivier Legrand said in a statement that skills are the “new currency” especially in the future of work, which makes it crucial to continuously improve on them. 

“LinkedIn, together with Microsoft, is committed to helping everyone shift towards a skills-based economy. In 2021, we will continue our efforts to equip job seekers with the right resources to pick up new skills and connect them to opportunities, as well as aim to help 250,000 organizations make a skills-first hire,” he said.

LinkedIn will also offer a Microsoft Teams app called Career Coach, aimed to guide college students in their career path of choice by helping discover their interests and goals. 

LinkedIn will also offer Microsoft Career Connector, which hopes to job-match 50,000 employment seekers to technology-related positions. 

Last year, LinkedIn said it helped over 5 million people build new digital skills through other initiatives with Microsoft. — Gillian M. Cortez

Trade deficit estimate for 2020 revised to $24.597B from $21.83B previously

REVISIONS to the trade data for 2020 yielded a larger than initially estimated deficit of $24.597 billion, compared with the tally announced in January of $21.830 billion, the Philippine Statistics Authority said Wednesday.  

The revised goods trade deficit is smaller than the deficits of $43.533 billion and $40.666 billion in 2018 and 2019, respectively. 

The revised export total for 2020 was $65.215 billion, against the $63.767 billion estimated previously. The new tally was 8.1% lower than the $70.927 billion posted in 2019, helping the export sector outperform the 16% decline forecast by the Development Budget Coordination Committee (DBCC). 

Imports last year were revised higher to $89.812 billion from $85.607 billion. The new total represents a decline of 19.5% from the imports tallied in 2019. The DBCC had assumed an import decline of 20%.

Exports of manufactured goods fell 8.7% to $53.779 billion in 2020. Goods accounted for 82.5% of last year’s export total. 

Electronics exports, which accounted for 58.2% of merchandise goods, declined 5.2% to $37.951 billion. 

Agriculture-based exports fell 7.4% to $4.784 billion last year.

Imports of capital goods fell 20.5% to $29.752 billion. These goods accounted for 33.1% of last year’s goods imports. 

Likewise, consumer goods imports fell 19.8% to $15.447 billion in 2020, while imports of raw materials and intermediate goods fell 11% to $36.158 billion. 

Japan took in $10.03 billion worth of Philippine exports, or 15.4% of the total. The US bought $10.02 billion for a 15.4% share and China $9.83 billion or 15.1%.

The top source of imports was China with goods worth $20.87 billion or 23.2% of the total, followed by Japan with $8.62 billion or 9.6% and the US $6.92 billion or 7.7% share. — Marissa Mae M. Ramos

Term deposit yields drop on lower oil prices, lockdown

YIELDS on central bank’s term deposits slipped on Wednesday amid lower oil prices and a decline in economic activity due to the return of stricter restriction measures in some parts of the country.

Bids for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) hit P685.078 billion on Wednesday, surpassing the P480-billion offer. This was also more than the P669.409 billion in tenders seen last week.

“The results of the TDF auction continue to show ample liquidity in the financial system and are in line with market preference for safe assets as they factor in the BSP’s unchanged policy rate and the reimposition of stricter quarantine measures,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

Broken down, tenders for the seven-day term deposits amounted to P226.288 billion, going beyond the P140-billion offering as well as the P261.363 billion in demand recorded the week prior.

Banks asked for yields ranging from 1.7% to 1.85%, a narrower range compared with the 1.71% to 1.89% seen last week. This brought the average rate of the one-week tenor to 1.828%, down by 1.52 basis points (bps) from the 1.8432% fetched on March 24.

Meanwhile, demand for 14-day deposits reached P458.79 billion, above the P340 billion auctioned off by the central bank and the P408.046 billion in tenders seen a week ago.

Accepted rates for the tenor were from 1.7% to 1.8924%, slimmer than the 1.5% to 1.929% band seen previously. With this, the average rate for the two-week papers dropped 1.71 bps to 1.8727% from 1.8898% in the previous auction.

The BSP did not offer 28-day deposits for the 24th straight auction to give way to its weekly auction of bills with the same tenor.

The central bank uses the term deposit facility and its securities to mop up excess liquidity in the financial system and guide market interest rates.

Term deposit yields declined following the downward correction in global oil prices and amid the reimposition of strict lockdown measures in Metro Manila and some provinces, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Oil prices fell more than 1% on Tuesday after market sentiment was soothed by the reopening of the Suez Canal after being blocked by a container carrier for nearly a week, Reuters reported.

Brent crude price declined 1.2% or 84 cents to $64.14 per barrel. Meanwhile, the West Texas Intermediate ended the session with its price falling by 1.6% or $1.01 to $60.55 a barrel.

At home, Metro Manila and nearby provinces Cavite, Laguna, Rizal, and Bulacan are under the strictest lockdown measures from March 29 to April 4. — Luz Wendy T. Noble with Reuters

Changes to ASEAN currency swap deal take effect

CHANGES to the Chiang Mai Initiative Multilateralization (CMIM) agreement took effect on Wednesday, allowing members to use their local currencies for liquidity support for swap agreements should the need arise.

The Bangko Sentral ng Pilipinas (BSP) said in a statement on Wednesday that the revised CMIM agreement will institutionalize members’ use of local currencies, apart from the dollar, for financing on a voluntary and demand-driven basis.

The facility, which was launched in 2010, is meant to service its members in times of short-term crises. The agreement includes finance ministers and central bank governors within the Association of Southeast Asian Nations (ASEAN), China, Japan, and Korea, as well as the Hong Kong Monetary Authority.

Revisions to the pact will also hike the International Monetary Fund (IMF) De-linked portion to 40% from 30%. This means members can obtain up to 40% of their maximum borrowing amount without being subjected to IMF’s lending conditions.

Members of the CMIM agreement also agreed to address technical issues, including the revisions related to the London Interbank Offered Rate. The international benchmark interest rate used by global banks for international interbank short-term loans will be phased out by June 30, 2023 and will be replaced by secured overnight financing rate.

The Philippines’ contribution to the CMIM through the BSP is at $9.104 billion. Under the agreement, the country can borrow up to 2.5 times its commitment or around $22.76 billion. — LWTN

Peso up on month-end flows, oil’s decline

THE PESO strengthened against the greenback on Wednesday amid easing oil prices and the month-end dollar flows.

The local unit closed at P48.53 per dollar on Wednesday, appreciating by 1.5 centavos from its P48.545 finish on Tuesday, data from the Bankers Association of the Philippines showed.

The peso also strengthened by four centavos from its P48.49 finish on March 26. The market is closed on Thursday and Friday in view of the Holy Week holidays.

The peso opened Wednesday’s session at P48.535 per dollar. Its weakest showing was at P48.60, while its intraday best was at P48.515 against the greenback.

Dollars traded increased to $933.19 million on Wednesday from $770.67 million the day prior.

The peso appreciated on the back of easing oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Oil prices dropped by more than 1% on Tuesday following the reopening of the Suez Canal after being blocked by a container carrier for nearly a week, Reuters reported.

Brent crude price declined 1.2% or 84 cents to $64.14 per barrel. Meanwhile, the West Texas Intermediate ended the session with its price falling by 1.6% or $1.01 to $60.55 a barrel.

Meanwhile, a trader attributed the peso’s gains to month-end dollar flows as well as preference for the local unit amid a likely quicker European inflation print. — L.W.T. Noble

Stocks decline on possible extension of strict lockdown

STOCKS declined on Wednesday after the Health department proposed a possible extension of the enhanced community quarantine (ECQ), with the government’s pandemic task force expected to meet on Saturday to decide on the matter.

The 30-member Philippine Stock Exchange index (PSEi) dropped by 102.46 points or 1.56% to close at 6,443.09 on Wednesday. The broader all shares index also went down by 41.57 points or 1.04% to 3,924.29.

“The market plunged back to the 6,400 level and heavy foreign selling was seen after the DoH (Department of Health) stated that the Greater Manila Area should stay under ECQ for two more weeks to curb the virus count,” AB Capital Securities, Inc. Junior Equity Analyst Lance U. Soledad said in a Viber message.

Diversified Securities, Inc. Equity Trader Aniceto K. Pangan said in a text message that the market continued to decline as the country’s coronavirus disease 2019 (COVID-19) infections increased. Over 9,000 new COVID-19 cases have been reported daily for the past five days.

“[Also, the] inflation rate will continue to breach the 2-4% range of [the] BSP (Bangko Sentral ng Pilipinas) due to tight food supply and increasing oil price,” Mr. Pangan added.

Headline inflation likely settled within 4.2% to 5% in March, the BSP said on Wednesday, on higher oil prices and the peso’s depreciation. This is beyond the 2-4% annual target.

The Philippine Statistics Authority will report the March inflation data on April 6.

The BSP’s point inflation projection for March is 4.6%, which, if realized, will be slower than the 4.7% print in February but higher than the 2.5% seen in the same month a year ago.

The central bank expects inflation to average at 4.2% this year.

Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said the Holy Week trading break also prompted investors to cash out.

“Investors liquidated positions ahead of the upcoming holidays,” Mr. Tantiangco said.

All of the sectoral indices closed in the red on Wednesday. Property declined by 67.5 points or 2.05% to 3,211.92; financials went down by 25.51 points or 1.82% to finish at 1,373.83; holding firms fell by 81.94 points or 1.24% to 6,524.81; services gave up 15.66 points or 1.09% to 1,414.59; mining and oil dropped by 82.94 points or 0.96% to 8,476.93; and industrials decreased by 44.79 points or 0.51% to close at 8,609.69.

Value turnover climbed to P6.5 billion on Wednesday with 2.04 billion issues switching hands from the P4.7 billion with 1.5 billion shares traded on Tuesday.

Decliners beat advancers, 113 against 97, while 50 names closed unchanged.

Net foreign selling ballooned to P1.7 billion on Wednesday from the P483.34 million on Tuesday.

“We expect to see sustained weakness in the market, should the government decide to extend the ECQ, with support levels at 6,400 and 6,200,” AB Capital Securities’ Mr. Soledad said. — K.C.G. Valmonte

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