Philippines: Sustained economic growth gives BSP greater flexibility – 21 Aug 2017

  • The strong economic expansion in 2Q17 gives monetary authorities flexibility to keep an accommodative monetary policy stance, according to the Bangko Sentral ng Pilipinas. BSP Deputy Governor Diwa Guinigundo said the growth rate in 2Q17 promises to be sustainable despite being in the lower end of the 6.5 – 7.5% target set by economic managers.
  • Robust domestic demand as well as the benign inflation environment have allowed the BSP to keep a dovish stance by keeping interest rates steady since Sep 14. On 10 Aug 17, the BSP kept benchmark rates unchanged but lifted inflation forecasts for the next three years.
  • “From a monetary policy perspective, that gives us greater flexibility to take advantage of our existing monetary space,” Guinigundo said. He pointed out industry, particularly manufacturing, led the growth momentum even as agriculture and services remained robust.
  • Guinigundo said public spending has recovered immensely with great support from consumption and investment. He explained net exports have recovered such that real gross national income (GNI) is now higher than real GDP.
  • However, stronger imports resulting to wider deficit is likely to translate into the first current account (CA) deficit in 15 years as well as into a weaker peso. The Duterte administration expects the GDP growth to accelerate further to a range of 7 – 8% in 2018.
  • The BSP has set an inflation target of between 2 – 4% for 2017 to 2020. The BSP’s Monetary Board has raised its inflation forecasts to 3.2% instead of 3.1% in 2017 and to 3.2% instead of 3% in 2018, and to 3.1% instead of 3% in 2019.

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