Real GDP growth in the Philippines accelerated from -.- y-o-y in Q--- to -.- in Q---, as strong domestic demand more than offset export weakness. Domestic resilience should persist, informing our expectations for the Philippine economy to remain on a sound footing despite growing external challenges. Accordingly, we are forecasting real GDP growth to come in at -.- and -.- in ---- and ----, respectively. Following the decision by the Bangko Sentral ng Pilipinas (BSP) to keep its benchmark interest rate unchanged at -.-- at its Decem- ber monetary policy meeting, we are forecasting the central bank to stand pat over the course of ----, as the Philippine economy should remain in a growth-inflation sweet spot. That said, potential economic risks stemming from a worsening of the external environ- ment and upcoming elections, as well as inflation risks arising from prolonged El Nino, could lead to monetary adjustments. ...That said, a solid current account surplus and high real interest rates should provide some support. As such, we maintain our forecast for the Philippine peso to depreciate towards our end- ---- target of PHP--.--/USD.
...The prospects for capital gains in the Philippine fixed income market will be limited in the months ahead owing to sustained nominal GDP growth without the need for interest rate cuts, the potential for inflation to rise due to prolonged El Nino and the likely normalisation of US mon- etary policy. While yields will rise, we expect Philippine bonds to be less vulnerable than regional peers such as Indonesia to a Fed liftoff, owing to the country s improving fiscal and external positions. ...The prospects for capital gains in the Philippine fixed income market will be limited in the months ahead owing to sustained nominal GDP growth without the need for interest rate cuts, the potential for inflation to rise due to prolonged El Nino and the likely normalisation of US mon- etary policy. While yields will rise, we expect Philippine bonds to be less vulnerable than regional peers such as Indonesia to a Fed liftoff, owing to the country s improving fiscal and external positions. The Philippine fixed income market will not be attractive for capital gains over the coming quarters. ...The Philippine fixed income market will not be attractive for capital gains over the coming quarters. Continued strong nomi- nal GDP growth in the Philippines will limit the room for bond gains, while our expectations for policy rates to remain on hold over the course of ----, the potential for inflation to increase faster than anticipated as a result of prolonged El Nino (which could lead us to revise our policy rate forecast higher) and the likely normalisation of interest rates in the US will pressure both local currency and dollar-denominated bond yields to rise.
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