BSP ready to manage ‘growing pains,’ says exec

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is ready to manage growing pains brought about by rising inflation, worsening current account deficit, and weak peso, according to its assistant governor Restituto Cruz.

In his keynote speech at the 13th Philippine Forum organized by The Asset, Cruz said the key developments that warrant deeper circumspection include inflation upswings in recent months, widening current account deficit, and the depreciation of the peso in the past two years.

“These three major developments can be seen as growing pains or the adjustments that the domestic economy has to endure as it moves to a higher plane of growth. Should potential risks emanating from these outcomes materialize, the Philippines has ample policy space to respond,” Cruz said.

He said investing in infrastructure, under the government’s massive infrastructure build up would pave the way for a more inclusive, durable and sustainable economic growth path.

The Philippines has registered an uninterrupted output expansion for 78 consecutive quarters since 1999 amid a challenging global environment.

“We have also witnessed a structural transformation in the economy as demonstrated by the increasing contribution of investments and manufacturing to economic growth. The emergence of the manufacturing sector as a pillar of economic growth is a welcome change as it could facilitate industrial development and generate more job opportunities for the country’s young population,” he said.

The country’s gross domestic product (GDP) growth eased to a three-year low of six percent in the second quarter from 6.6 percent in the first quarter, bringing the average to 6.3 percent in the first half.

“The Philippine economy in recent years has been experiencing both a growth spurt and growing pains. In recent months, as the economy faces a challenging environment, some question the economy’s ability to sustain its momentum of robust performance,” Cruz said.

He said inflation upswings in recent months are driven largely by supply-side factors such as higher global oil prices, food supply disruptions, and higher excise taxes under Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

“In times like these, the BSP exercises more prudence to ensure that appropriate policy responses to address inflationary pressures are pursued, in coordination with other government entities,” he said.

Likewise, Cruz said running a current account deficit is not necessarily a cause for concern as significant rise in imports over the past three years was driven mainly by increased demand for capital goods as the economy continues to accelerate.

He added the Philippine has reliable sources of foreign exchange, ample level of gross international reserves, and low external indebtedness to finance the widening current account deficit.

Likewise, the BSP official said the weakening of the peso could be traced to the rising demand for foreign exchange traceable to the surge in imports in support of the growing economy, debt repayments and prepayments, and outwards investments.