Tetangco reiterates strength of PHL macroecomic fundamentals

By Joann Santiago

MANILA, Aug 6 (PNA) — Filipinos need not fear that recent gains of the Philippine economy and its impact on the lives of the people will go kaput on back of hurdles both from the domestic and external fronts.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., during the initial hearing for the proposed PHP2.606 trillion 2015 national budget at the House of Representatives Wednesday, said “macroeconomic fundamentals remain strong, [despite] the moderated first quarter [growth].”

“(The) underlying narrative of Philippine economy stays the same. The domestic economy continues to expand above historical average,” he said.

Last year, the domestic economy surpassed expectations after hitting an above-target growth of 7.2 percent, higher than the government’s six to seven percent target.

On the other hand, growth in the first quarter of 2014 slowed to 5.7 percent from quarter-ago’s 6.4 percent due to supply-side factors as a result of the calamities that hit the country in the last quarter of 2013.

This supply-side factors are the main reason for the sustained rise of inflation rate in the country.

However, Tetangco said monetary officials expect rate of price increases to moderate in the coming months and stay within target “supported by well-calibrated monetary policy settings.”

The government’s inflation target for 2014 is a range between three to five percent while next year’s target is between two to four percent.

In the first seven months of the year, inflation averaged at 4.3 percent at the upper half of the target.

Last July alone, inflation surged and almost breached the upper end of the target at 4.9 percent because of faster inflation rate primarily of food and non-alcoholic beverages.

This uptrend in the inflation rate is the reason why monetary officials, during the meeting of the central bank’s policy-making Monetary Board (MB) last July 31, hiked by 25 basis points the BSP’s key rates.

To date, the central bank’s overnight borrowing or reverse repurchase (RRP) rate is at 3.75 percent and the overnight lending or repurchase (RP) rate is at 5.75 percent.

These were last adjusted in October 2012 when it was cut to record-low, for the RRP rate, on back of low-inflation environment and strong domestic growth.

The hike in the key rates was made after monetary officials noted the possible breaching of the 2015 target.

Aside from inflation, Tetangco said there are other challenges for the domestic economy “but we believe we can stay the course.”

Among the risks from the domestic front are natural calamities and power outages while external risks include normalization of growth, slowdown in other emerging markets and geopolitical issues.

The central bank chief also cited that growth of both the domestic liquidity or M3 and credit remain strong and these might lead to price pressures and financial imbalances.

However, these factors are also supportive of the growth requirements of the economy, he pointed out.

The BSP has implemented several measures to address strong M3 growth among others and Tetangco said these measures “are still working their way into the system.”

”We believe that policy makers have sufficient policy space to counter these risks. Sufficient and properly allocated fiscal spending (and) timely implementation of supply-side measures will also help keep price manageable,” he said.

The central bank chief noted that the BSP has also “pre-emptively adjusted some of its tools to guard against potential risks to price and financial stability.”

He stressed that “the BSP remains prepared to implement further policy actions, as needed, to prevent any potential build up in inflation expectations and financial imbalances.”

”The way forward necessitates in capitalizing on recent gains and pursuing more reforms to fully boost our productivity,” he said.

“Any economic story is never of a straight line there could be bumps as we move forward. But we can and we will stay in the course. To this end, the BSP remains steadfast in our commitment in our monetary policy framework and reforms in the financial system,” he added. (PNA)