(from the October 2024 issue of our monthly newsletter, Properties Connoisseur)
I could not have thought of a better title; despite the growing shroud of the Christmas holidays, business entities remain abuzz these days, and for good reason – they are all trying to meet their year-end targets! Still, it does not mean there are no good things to look forward to; in fact, perhaps this Christmas will actually be the best one yet post-2019. Here are a few reasons why:
SEPTEMBER INFLATION RATE
Headline inflation rate for September 2024 was reported at 1.9%, the lowest since May 2020. This is lower than the 3.3% in August, and from 6.1% September last year; it is even lower than the predicted 2.0 – 2.8% by the Bangko Sentral ng Pilipinas. Of course, economic activity and prices in general are expected to increase as we come closer to Christmas, but nevertheless, the trend shows that government measures to curb high inflation rates seem to have taken hold, providing both buyers and suppliers stability as far as basic goods and raw materials are concerned. Realistically speaking, a stable price index is all that a business needs to optimize its operations and determine its optimum production level, and with inflation seemingly under control now, profit margins can be estimated with a degree of certainty, and entrepreneurs will be able to compute their operational requirements for the medium term instead of taking it month-on-month. More than anyone, micro- and small enterprises benefit this development.
INTEREST RATE REDUCTION, HERE AND ABROAD
When the Bangko Sentral ng Pilipinas lowered interest rates by 25 basis points last month, it seemed like a test-run of lowering lending costs; but when the US Federal Reserve reduced their interest rates by 50 basis points and even hinted another 50-point reduction within the year, then truly, the thrust for economic growth has begun! With the world’s biggest economy leading the way, it is expected that central banks all over would follow suit, thus driving a worldwide effort to initiate expansion in production, consumption and expenditures, not merely to regain lost ground, but perhaps to set a new equilibrium. With lower interest rates, businesses can now avail of much needed capital for new ventures, expansion, and even consolidate loans that were incurred to keep their enterprises afloat for the past few years. On the consumer side, it should allow small investors to pursue pocket opportunities such as distressed real estate assets and the predicted increase of second-hand luxury vans and vehicles due to the POGO exit. On a serious note, the lower cost of borrowing translates to a lower break-even point for any investment or business venture, thereby encouraging the pursuit of business prospects and special deal offers.
LOWER RESERVE REQUIREMENTS FOR BANKS
When reserve ratio requirements were reduced from 9.5% to 7.0% of bank deposits, an estimated ₱375 Billion were made available for servicing. This meant increased liquidity for banks, allowing them to offer more loans and faster money velocity to spur economic activity. Hopefully, the loans extended will be used more for business loans than consumer loans, as the latter has been causing the increase of non-performing loans due to credit card default. Nevertheless, the silver lining is that the Bangko Sentral ng Pilipinas affirms that it is possible to reduce the reserve requirement further, noting that some Southeast Asian countries, particularly Thailand, Vietnam and Malaysia, have lower reserve ratio requirements. Still, such policy will be carefully examined, as there is a need to secure the capacity of banks to render basic services to their depositors.
PHILIPPINE STOCK EXCHANGE MOVING UP
Though it is typical to observe stock markets doing better as the year ends, recent events have shown increasing confidence in publicly listed companies. From previous preference for secured notes and corporate bonds, recent issuances of preferred shares by Petron Corporation and Ayala Land, Inc. have both been oversubscribed, and in record time, showing bullish sentiment to the capacity of both companies to grow and meet commitments in the future. There are a few companies considering doing an IPO next year, and at least one – namely Gcash – being clamored by analysts, brokers and investors to go public soon. All in all, these events bode well for the local bourse, which has been moving heaven and earth in trying to encourage more involvement from a crowd that has been dwindling since the lockdown was lifted.
As always, these developments must be viewed with caution, as not everything are roses in bloom; the conflict in the Middle East has been expanding in territorial coverage, US election surveys show a statistically tie between both presidential candidates, and there is a question on how long it will take China to grapple with its economic downturn to once again assume its superpower status and influence. Still, tailwinds blow stronger than headwinds at present, and we all but hope that paradise would loom in the horizon very soon.
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