Robust economic growth keeps inflation on target – BSP

MANILA, Philippines — The strong economic expansion in 2017 has given monetary authorities ample space to focus on meeting the inflation target and push market reforms, according to the Bangko Sentral ng Pilipinas.

BSP Governor Nestor Espenilla Jr. said the strong gross domestic product (GDP) result in the fourth quarter and in 2017 confirm the underlying strength of the economy that rests on an increasingly balanced foundation.

The government reported that the economy expanded by 6.6 percent in the fourth quarter of last year from the revised seven percent in the third quarter, bringing the full-year expansion to 6.7 percent in 2017 from 6.9 percent in 2016.

This was close to the lower end of the 6.5 to 7.5 percent target set by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

“This gives BSP ample space to stay focused on inflation target and pursue ambitious reforms,” Espenilla said.

The DBCC has also retained the inflation target at two to four percent between 2017 and 2020.

“The current economic landscape is healthy and robust. It is ripe and ready to receive our added investments of time, energy, creativity and resources. It is prepared for us to work together better to include more of our countrymen into the financial system so that they too could participate and eventually contribute to its continued flourishing,” Espenilla earlier said in a speech.

He said the Philippines is one of the world’s fastest growing investment-grade economies.

“We are optimistic that this high growth will continue and we will meet the full-year target range of seven to eight percent GDP growth in the medium term, or from 2018 to 2022,” he said.

The robust domestic demand and benign inflation environment have allowed the central bank to keep interest rates unchanged over the past three years to support the expanding economy. It last raised interest rates by 25 basis points in September 2014.

The central bank’s Monetary Board is scheduled to hold the first of its eight rate setting meetings this year on Feb 8.

Investment banks are expecting the BSP to shift to tightening mode this year with some economists penciling a 100-basis point hike in benchmark rates starting as early as the first quarter.

Sanjay Mathur, chief economist of ANZ Bank for Southeast Asia and India, said the BSP may raise interest rates twice this year for a total of 50 basis points.