BSP shrugs off overheating concerns

Sustained GDP growth on benign inflation

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) shrugged off anew concerns the Philippines could be at risk of overheating, saying it can sustain strong economic expansion without having to face faster inflation.

BSP Deputy Governor Diwa Guinigundo said the country continued to sustain a strong gross domestic product (GDP) growth on the back of a benign inflation environment.

GDP growth accelerated to seven percent in the second quarter from the revised 6.8 percent in the first quarter amid the boost from election-related spending.

This brought the GDP expansion to 6.9 percent in the first half from 5.5 percent in the same period last year.

Economic managers have lowered the country’s GDP growth forecast to a range of six to seven percent instead of 6.8 to 7.8 percent this year.

Guinigundo downplayed the pronouncements of some quarters there was a need for monetary authorities to preempt asset bubble in the Philippines.

“You see overheating when prices are beginning to surge. We don’t have that. Where are you coming from when you say you need to preempt a potential asset bubble,” he said. 

Amid the strong growth, the country’s inflation remained tame at 1.4 percent in the first seven months of the year after hitting 1.9 percent in July. 

The BSP has set an inflation target of between two and four percent between 2016 and 2018. 

“We would expect that with ample liquidity and credit available in the system, higher domestic demand especially from stronger public spending will sustain our high growth path,” he added. 

The growth of liquidity in the financial system eased to 12.3 percent to P8.71 trillion in June with the introduction of the interest rate corridor (IRC) system. This was slower than the 13.5 percent expansion booked in May. 

On the other hand, bank loans grew 17.6 percent to P5.41 trillion in end June last year due to strong demand from corporate and retail borrowers. 

“We continue to monitor credit and liquidity growth in the economy. We have a very ample supply of both. But that doesn’t amount to an asset bubble,” Guinigundo said. 

According to Guinigundo, the country’s monetary policy stance remains appropriate amid the strong growth as well as the volatility caused by the impending interest rate hike by the US Federal Reserve. 

“We don’t necessarily need to be in step with the US Fed. The Fed has a lot of catching up to do. The BSP is in an appropriate level of policy rates which have contributed to high-growth and low, stable inflation,” he said.

The BSP’s Monetary Board has kept its policy stance unchanged for 15 straight rate-setting meetings since October 2014 due to robust domestic demand. 

“This performance also supports the maintenance of monetary policy settings. The economy continues to expand and does not need additional monetary support,” he added.