To no one’s surprise, the Monetary Board decided not to kill the goose that lays the golden eggs. At least not at this time.
In its policy meeting this week, the Monetary Board decided to keep benchmark interest rates at 6.25 percent. This is the third policy meeting in a row that our monetary authorities held rates steady. The two previous meetings were held in May and June.
Our inflation rate responded quite well to the aggressive sequence of interest rate hikes undertaken since last year. While inflation remains elevated, it is driven largely by factors that higher interest rates cannot cure. Among these are the substantial increases in fuel costs and higher prices for the food we import such as rice.
We import nearly all of our oil needs. The international prices for the commodity increased substantially the past few weeks, mainly as a result of Saudi Arabia’s decision to trim its production levels. That puts supply pressure on fuel prices.
Recently, too, India decided to curtail its rice exportation in the interest of domestic food security. India accounts for a substantial portion of tradable rice supplies. As a result of India’s decision, rice prices have spiked.
An increase in our policy rates will not cure the cost-push of oil and rice prices. More likely, monetary tightening will sap the expansion of the domestic economy. In which case, the cure will be more painful than the disease.
It should be a concern that our GDP growth rate dropped in the second quarter. This imperils our ability to grow our economy by at least 6 percent by yearend.
One major cause for the slower-than-expected Q2 growth is constriction in public spending. This might be cured by accelerating public spending in the second half of this year.
It is also true, however, that a second factor in slowing growth is investments. Here the interest rate regime is a factor. Higher borrowing costs presents investors a much more difficult hurdle to surmount.
We are trying to grow our economy amidst a hostile external environment. Economists call the external factors “headwinds.”
Our biggest external concern is the apparent slowdown of China’s economy. Two of China’s biggest property developers are in financial trouble. That could lead to a ruinous chain of events threatening the country’s banking system. One beneficial outcome of the stagnation of China’s economy is the softening of oil prices the last few days.
We need to tolerate a bit of inflation in order to spur domestic expansion. But we should not aggravate the inflation through counterproductive things like legislated wage increases and inferior fiscal management.
There remains two conditions that could still bring about tighter monetary policy: a collapse in the peso’s exchange rate and a sharp spike in domestic inflation. Neither appears imminent at the moment.
Boomtown
Batangas province should be our next boomtown. The province has benefited from forward-looking management. It has an excellent port, great industrial estates and fantastic beach resorts.
Now the province stands to benefit from the Silang-Bauan expressway that will be built by a collaboration between San Miguel Infrastructure and Metro Pacific Tollways. This project addresses precisely that progressive province’s only drawback: poor roadways.
AbaCore Capital Holdings Inc. probably represents in granular form Batangas’ bright prospects. The company has been wisely investing in anticipation of the boom days.
Batangas-based AbaCore is a sprawling company involved in real estate development, tourism, finance and energy. For years, the company has been accumulating land in the province for industrial and tourism development. The long strategy is beginning to pay off.
In the first half of this year, reflecting the company’s growth momentum, AbaCore saw a net income of P308.8 million. This is already 77 percent of its annual operating income last year.
The remarkable jump in AbaCore’s net income is attributed to a gain of P278.8 million from the sale of an investment property. Other sources of income in the first half is a gain of P75.8 million from the sale of shares in a subsidiary and interest income of P10.8 million.
The company has been busy diversifying its operations in Batangas across various sectors, from tourism to energy. AbaCore recently acquired property in Silang, Cavite. The town will soon blossom into a hub connecting the CALAX with the Silang-Bauan Expressway.
The new expressway, intended to be completed by 2027, will traverse the entire length of Batangas province. It will make it easier for local and foreign tourists to access the resorts in the province. It will be more economical to build industries in the province that will take advantage of the full potential of the Batangas port.
The expressway will increase traffic through the province headed to the Bicol region. Further into the future, it is likely this expressway will be extended southwards linking more provinces to the Batangas hub.
The forthcoming expressway is heaven-sent for the beautiful province of Batangas, nestled between verdant hills and scenic coastlines. It will bring precious connectivity to the surrounding nodes of economic growth.
A reliable barometer on how the local economy thrives is AbaCore. It is a company that is invested in the full range of the province’s economic potential. It is managed with the same financial discipline and sensitivity to the environment that always characterized the way the province has been run.
If AbaCore is doing good, then Batangas as a whole cannot be too far behind. All the ingredients for prosperity are now present.