Recent PHP weakness should help boosting private consumption

Philippines remittances increased by 6.1% in June, and averaged 5.7% growth in Q2. The pace of improvement remains satisfactory, although for 1H 2015 remittances growth of 5.6% y/y was slightly lower than the 6.9% in 1H 2014. 

With remittances reported in USD, flows continue to be weighed by the near 20% decline in EUR/USD over the past year, and increasingly may be weighed down by weakness in regional currencies.

"The recent weakness in the PHP should help in boosting private consumption through the remittances channel. While headline remittances growth may be modest, the weaker PHP implies that the converted value of remittances is likely to be higher, which should support activity in 2H", says Barclays.

Overall, despite the recent downtrend in inflation, domestic demand is expected to remain the key driver of activity, and the next policy decision is still expected to be a hike, only now later. Benign inflation has created room to keep policy rates on hold for the time being, especially with the recent weakness in the PHP. 

"As such, the forecast of a rate hike is pushed back to Q3 16, when election-related uncertainty should be over, and inflation starting to pick up. In the meantime, market attention is expected to shift rapidly towards next May's presidential election, which is likely to become a bigger focus going into Q4 2015", added Barclays.