Economic expansion should pick up in Q1 from its 2018 pace driven by heightened infrastructure and renewed consumer spending. The fall of inflation to within BSP target range augurs well for consumer demand, besides the spill-over effect of election-related spending. The downside risk from yet unapproved fiscal budget could have a negative, albeit minimal impact on infrastructure spending in Q1.
T-bill yields should fall from current high levels after BSP adds more liquidity via cut in reserve requirements by Q2 (latest) and steady build-up of FX reserves. Long end bond yields may follow further inflation rate falls, albeit at a slower pace, for the rest of H1. However, we expect inflation to take a bigger drop to below-3% by August. Thus, we see more corporate bond issuances in H2.
Due to the inability of PSEi to break the resistance level of 8,200, not much can be expected from the local stock market in the near-term. However, things could change by April-May if Q1-2019 GDP growth lies clearly above 6%, BSP eases liquidity, good corporate earnings are posted, and credible and balanced results emerge from the Senatorial elections in May.