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BSP minutes: Domestic growth indicators to remain ‘favorable’

Posted on March 10, 2017

THE PHILIPPINE ECONOMY is seen keeping its upbeat growth momentum this year as domestic conditions remain intact, which would help cushion possible downturns in the global market, the Bangko Sentral ng Pilipinas (BSP) said in deciding to hold off policy tweaks last month.

The Monetary Board decided to keep interest rates steady in its Feb. 9 meeting, amid expectations that consumption and investments will remain solid while inflation stays manageable.

“Prospects for the domestic economy remain favorable. Trends in high-frequency demand indicators are generally positive: volume sales of automobiles and electricity are still rising, the composite PMI (purchasing managers’ index) has stayed above the 50-point threshold, and both business and consumer outlook continue to be favorable,” read the highlights of the Monetary Board’s Feb. 9 meeting published yesterday.

An above-50 PMI score means factory output in the Philippines remained growing, on the back of improving business conditions.

Looking ahead, central bank officials expect the government’s infrastructure push to contribute to faster economic growth.

“The fiscal stimulus from higher infrastructure spending could also provide a boost to the economy. Sustained growth in capital formation and broad-based expansion in bank lending is expected to continue to underpin domestic economic activity.”

The Philippine economy expanded by 6.6% in the fourth quarter, which brought the 2016 tally at 6.8%, close to the high end of the government’s 6-7% growth goal. This year, economic managers are looking to spur expansion to 6.5-7.5%, which if realized would cement the country’s position as one of Asia’s fastest-growing economies.

The central bank last month opted to keep the benchmark borrowing rate at three percent, while overnight lending and overnight deposit rates stood steady at 3.5% and 2.5%, respectively. The 20% reserve requirement ratio imposed on big banks was also left unchanged in last month’s review.

This comes after the United States Federal Reserve also maintained rates during its Jan.31-Feb. 1 meeting, its first after a 25-basis-point increase introduced in December last year. Back then, Fed chair Janet L. Yellen hinted that US policy makers are looking to raise rates as many as three times this year and, lately, signaled that a rate hike is in store next week.

Back home, the Monetary Board said domestic economic activity will stay “firm” despite a “more challenging” global environment, particularly led by higher interest rates in the US, the world’s biggest economy.

Inflation is also seen to trend higher, but will likely keep within the central bank’s 2-4% target band. The BSP expects commodity prices to rise by an average of 3.5% this year and by 3.1% in 2018.

Monetary officials, however, said inflation risks remain tilted to the upside on the back of possible increases in power rates and the initial impact of tax reforms being finalized by Congress, which carry higher taxes on fuel and cars.

“The latest baseline forecasts show a higher but within-target inflation path for 2017-2018, due mainly to the increase in oil prices and approved hikes in jeepney and taxi fares,” the report added, referring to the P1 increase in jeepney base fares that took effect Feb. 10.

February inflation hit 3.3% to log the fastest climb in over two years, which brought the two-month average to three percent.

The BSP will hold its third rate-setting meeting for the year on March 23, a week after the Fed’s March 14-15 review where a rate hike is widely expected to be introduced.

BSP Governor Amando M. Tetangco, Jr. has said that Philippine monetary authorities will not have to move in sync with the Fed, as there remains ample room to hold fire on policy adjustments for now. -- Melissa Luz T. Lopez