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BSP likely to keep policy rate unchanged through rest of the year given better-than-expected Q3 GDP, says ANZ Research

Bangko Sentral ng Pilipinas (BSP) is expected to keep its policy rate unchanged through the rest of the year given the better-than-expected performance of GDP in the third quarter of this year, according to the latest report from ANZ Research.

Growth in domestic demand picked up to 5.5 percent y/y in Q3, from 2.3 percent y/y in Q2, contributing 6.0ppt to overall growth. At the component level, private consumption strengthened to 5.9 percent y/y from 5.5 percent previously.

Public consumption rose to 9.6 percent y/y, from 7.3 percent y/y in Q2 2019. Importantly, construction investment picked up smartly to 17 percent y/y (vs Q2: 2.8 percent), driving gross fixed capital formation to 2.2 percent y/y after a 4.6 percent contraction in Q2.

In part this reflects a low base, especially for public construction in Q3 last year, but there is some evidence that investment activity is picking up steam as the effects of delayed budget implementation fade. Government spending rose 39 percent y/y in September, and there was also a modest improvement in capital goods imports in the quarter.

If the spending resurgence is sustained investment activity is expected to further solidify in Q4. Export growth moderated to 0.2 percent y/y in Q3 (Q2: 4.8 percent). Meanwhile, firmer consumption and investment activity prevented a collapse in imports which remained flat in Q3 (Q2: -0.1 percent). This resulted in a smaller contribution of net trade of 0.1ppt (Q2: 3.0ppt) to overall growth, the report added.

On the supply side, growth in industry rebounded to 5.6 percent in Q3, from 3.7 percent in Q2, upon a resurgence in construction activity. Agriculture and associated components also grew at a faster clip 3.1 percent y/y in Q3 (Q2: 0.8 percent). Meanwhile, services growth moderated to 6.9 percent y/y (vs 7.1 percent in Q2).

"The BSP is likely to wait and watch for the impact of the cumulative 75bps of policy rate and 400bps of reserve requirement ratio cuts that it has undertaken so far this year," ANZ Research further commented in the report.

By Debarati Bir
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