Moody’s inflation ‘heavily politicized’

MOODY's sees a 6.5 percent and 6.8 percent growth rates for the Philippines this year and in 2018, respectively.

Debt-watcher Moody’s yesterday assessed the Philippine economic growth is unlikely to fall below six percent, even as elevated inflation has started to “bite into” the expansion.
Moody’s described the reaction on inflation is “heavily politicized.”

Moody’s Investor Service vice president and senior credit officer Christian de Guzman said Wednesday the country “continues to be one of the healthier economies” in the world as the country’s reliance mainly on domestic financing cushions the impact of crises in Argentina and Turkey.

“Inflation will continue to be a challenge and is starting to bite into growth,” said De Guzman, citing the recent negative score in the Bangko Sentral ng Pilipinas’ (BSP) consumer expectation survey, the first since early 2016.

He also noted the 250-basis point increase in the 10-year bond yield, which outpaced the 150-basis point hike in the central bank’s benchmark interest rate.

Inflation having been “heavily politicized,” is also “having an impact on policy performance,” he said.

Investors did not expect any policy deviation despite the extended medical leave of BSP Governor Nestor Espenilla, who is battling tongue cancer.

Earlier, Budget Secretary Benjamin Diokno said the country’s gross domestic product (GDP) could “realistically” grow by 6.7 to 6.9 percent this year, lower than the initial target of seven to eight percent.

The Asian Development Bank recently lowered its Philippine growth forecast to 6.4 percent from 6.8 percent for 2018 amid “softened growth” in the second quarter.

“Realistically, that’s maybe out of prints, even the lower bound, seven percent. We’re probably shooting for 6.7 or 6.9 percent but not seven to eight percent,” Diokno said Tuesday.

“We’re not gonna hit that anymore. Let’s not talk of hypothetical…I’m not worried about what’s gonna be, we’re not gonna hit seven percent,” he said.

With the first half GDP at 6.3 percent, Diokno said the GDP has to grow by 7.7 percent in the second half of the year to meet the lower bound of the target.