Divergent

PHILIPPINES - In Brief 27 Mar 2014 by Romeo Bernardo

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Monetary and fiscal policies have diverged with the former on a tightening track and the latter loosening up some more. Revealing its primary concern at this time, i.e., of liquidity-driven increases in risk appetites, the Monetary Board opted to raise the reserve requirement on bank deposits by 100bp to 19% while mantaining policy rates where they are. The move jibes with the IMF's statement that "supporting measures" would "prevent the emergence of stretched valuations of real and financial assets." M3 grew by 38.6% in January while domestic credits to the private sector expanded 19.4% (17.3% in December). The start of monetary policy tightening came as government announced a 12.6% increase in its non-interest expenditures for January, which it attributed to reconstruction spending. The double-digit growth followed two months of spending declines in November-December 2013 and improves our outlook on government's ability to achieve expenditure targets and hence, support higher GDP growth. Meanwhile, the peace agreement between government and the Moro Islamic Liberation Front (MILF), ending decades of strife in Mindanao, was finally signed today in a ceremony witnessed by the Malaysian Prime Minister. While several hurdles still need to be overcome, including passage of the Basic Law by Congress and a plebiscite to determine which areas will be included in the new autonomous Bangsa Moro political entity, President Aquino's showed firm determination to see this through before his term ends in 2016. This can only be positive for investor confidence, particularly in Mindanao. While power shortages currently affect the region, this will be addressed by several power plants...