Philippine economy robust enough to absorb higher rates: BSP

  • The Bangko Sentral ng Pilipinas (BSP) has given assurance that the country’s economic growth remains solid enough to absorb higher interest rates, if warranted, as inflation is seen peaking due to transitory effects of the tax reform law.
  • BSP Governor Nestor Espenilla Jr. told members of the Money Market Association of the Philippines (MART) that monetary authorities would stay alert to any signs of second-round effects and inflation becoming broader based.
  • “We stand firm in our intent to take immediate and appropriate measures to ensure that the monetary policy stance supports our price and financial stability objectives. Economic growth remains solid enough to absorb some policy tightening, if warranted,” Espenilla said.
  • The Philippines has booked 76 quarters of uninterrupted growth with the gross domestic product (GDP) expanding 6.6% in the 4Q17.
  • The GDP grew 6.7% in 2017 from 6.9%, fuelled by election-related spending in 2016. The growth was well within target set by economic managers for 2017.
  • The robust growth was achieved amid the benign inflation environment as inflation climbed to 3.2% in 2017 from 1.8% in 2016 despite elevated oil prices.
  • The BSP’s Monetary Board last raised interest rates by 25 basis points in Sep 14 and has embraced an accommodative stance to support the expanding economy.
  • The central bank continued to adopt a dovish policy stance, keeping benchmark rates steady during its first two rate-setting meetings in 2018 even if inflation kicked up to its highest level in more than three years at 4.5% in Feb 18 from 4% in Jan 18.
  • This brought the average inflation at 4.2% in Jan 18 and Feb 18, slightly above the 2 to 4% target set by the BSP for 2018 to 2020.
  • The BSP chief said decisions on the monetary policy stance would continue to be data-dependent.
  • “Focus will be on domestic conditions while taking into account external developments, only to the extent that this impact the domestic inflation outlook and financial conditions,” Espenilla added.

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