Manageable inflation, high growth: Inflation is currently trending higher compared withprevious months in light of adverse weather and rising oil prices. However, we believethis not reason enough for the BSP to hike rates since headline inflation remains nearthe midpoint of the BSP’s 2-4% target band. Moreover, there is very little incentive forthe BSP to tweak policy rates in the short term and risk impinging the Philippines’economic momentum when demand-pull price pressures are weak.    RRR cut still on the table but may be delayed: We continue to believe a 100bp cut tothe RRR for liquidity management purposes is the next logical policy move for the BSPgiven a rising loan-to-deposit ratio (LDR). We expect the BSP to cut the RRR in 4Q, butthere appears to be no rush and the short-term inflation momentum complicates things,in addition to one-off fuel excise tax hikes in 2018 as a part of tax reform. It is worthnoting, however, that the fate of the reform remains unknown as it is still being debatedin the Senate and may be watered down. Non-passage by the end year, or a significantalteration, would suggest downside risks to our 2018 inflation forecast of 3.3%.    TDF rates rising: Term deposit facility (TDF) rates have continued to rise largely due tounder-subscription, signalling greater market preference for additional liquidity in thesystem and reducing the likelihood for a policy rate hike this year, seeing that the BSP iscurrently reducing volumes. We forecast no change to the policy rate through 2018.

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