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BSP ready to use policy toolkit to arrest potential overheating

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By Melissa Luz T. Lopez,
Senior Reporter

THE Bangko Sentral ng Pilipinas (BSP) stands ready to deploy an array of tools to dodge potential overheating in the Philippine economy, its chief said, noting that rapid credit growth should not ring alarm bells just yet.

BSP Governor Nestor A. Espenilla, Jr. quelled fresh concerns over the double-digit bank lending growth which persisted in October, saying that this should not be expressly viewed as a source of caution.

“[O]verheating happens when the present demands on the economy significantly exceeds its present capacity to provide. Easy to say but always hard to discern since our economy is complex, with many moving parts,” the BSP chief said in a text message to reporters, noting that one cannot diagnose an overheat using the pace of loan growth alone.

Bank credit grew by 19.9% in October as consumer lending surged by 23.4% and as production loans rose by 18.7%, latest central bank data showed. The pace, however, slowed from a 21.1% increase the previous month.

Mr. Espenilla noted that the economy is “constantly improving” through good investments which enter the country, against risks drawn from external shocks.

“We have to strategically examine a whole lot of information to tell us how the overall economy is doing and, no less important, how should we respond if at all,” he added.

The central bank regularly keeps close monitoring of economic developments via their cyclical review of monetary policy settings every six weeks, Mr. Espenilla said.

The BSP has kept its monetary policy stance unchanged during their Nov. 9 review, citing manageable inflation and upbeat domestic economic activity. Policy makers will again meet on Dec. 14 for their eighth and final review of policy settings for the year.

Beyond monetary policy, the central bank chief other tools are available for targeted response to emerging threats.

“The policy toolkit of BSP is not just monetary policy. Don’t forget its considerable supervisory powers over the banking and financial system to prevent imprudent and reckless behaviors in individual entities and sectors that lead to unsustainable risk build ups — that grinds on relentlessly,” the central bank said.

The BSP chief likened the economy to a race car: “We are working hard to run our economy competitively so it finishes a winner. We are talking careful preparation, regular tune-ups and upgrades, skillful driving, and constant monitoring.”

“The engine is expected to get hot along the way — that’s what running engines do,” Mr. Espenilla said. “But there’s a huge difference between a hot engine and an overheated engine. If we don’t like hot engines, we should keep our car parked.”

Mr. Espenilla has tagged uncertainty over the pace of monetary policy tightening in the United States and other advanced economies, exchange rate movements and disruptive financial technology as among the biggest risks to the Philippine economy.

Still, he maintained that the central bank stands well-equipped to guide the economy in weathering such headwinds.

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