Barely a month after the peso breached the PhP48/US$ support level, it has again reached new highs by breaking into the PhP46/US$ territory. I'm seriously in trouble.
Portfolio funds (mostly through the equities market) from overseas, remittances from OFWs and to a certain extent Foreign Direct Investments (or FDI's) have pushed M3 or domestic liquidity (currency in circulation, deposits held in banks, etc) by a staggering 23-24%, which is way above the Bangko Sentral's 20% cap on money supply growth.
This is clearly inflationary, aggravated by huge spending sprees for political campaigns during the recently-concluded elections (I heard Prospero Pichay spent the biggest amount among the senatorial candidates). Movements in global oil prices have thankfully been stable but this may change anytime with a standoff in either Iran or North Korea.
As I have expected, interest rates have risen (benchmark 90-day T-bills is at 3.0%++) and with a strong M3 as well as higher inflation, monetary authorities may be forced to mop up excess liquidity in the financial system by raising rates further or perhaps raising banks' reserve requirement.
Other inflation indicators, such as trends in consumer spending, show mixed results. Sales of appliances, for example, have been falling dramatically (I know because I just completed an industry study on this) but telecomms sales (cell phones) continue to defy expectations of a maturing market.
So should we be concerned about inflation? definitely, over the medium-term perhaps when the property market will likely overheat and consumer spending will be boosted by higher dollar remittances per capita.
My main concern right now is to look for other avenues to compensate for the lower revenues on account of the peso's unprecedented strength.
Portfolio funds (mostly through the equities market) from overseas, remittances from OFWs and to a certain extent Foreign Direct Investments (or FDI's) have pushed M3 or domestic liquidity (currency in circulation, deposits held in banks, etc) by a staggering 23-24%, which is way above the Bangko Sentral's 20% cap on money supply growth.
This is clearly inflationary, aggravated by huge spending sprees for political campaigns during the recently-concluded elections (I heard Prospero Pichay spent the biggest amount among the senatorial candidates). Movements in global oil prices have thankfully been stable but this may change anytime with a standoff in either Iran or North Korea.
As I have expected, interest rates have risen (benchmark 90-day T-bills is at 3.0%++) and with a strong M3 as well as higher inflation, monetary authorities may be forced to mop up excess liquidity in the financial system by raising rates further or perhaps raising banks' reserve requirement.
Other inflation indicators, such as trends in consumer spending, show mixed results. Sales of appliances, for example, have been falling dramatically (I know because I just completed an industry study on this) but telecomms sales (cell phones) continue to defy expectations of a maturing market.
So should we be concerned about inflation? definitely, over the medium-term perhaps when the property market will likely overheat and consumer spending will be boosted by higher dollar remittances per capita.
My main concern right now is to look for other avenues to compensate for the lower revenues on account of the peso's unprecedented strength.
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