BSP Upbeat On Economy

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno emphasized that sound macroeconomic fundamentals are supporting the Philippine economy’s recovery and helping pave the way for a much stronger economy in the post-pandemic era.

Photo Insert: The BSP has high hopes for a much stronger post-pandemic economy.

During a virtual fireside chat with clients of Japan-based financial services firm, Nomura, the BSP Governor said the Philippine economy has begun the recovery process, as evidenced by the 11.8-percent growth in the second quarter. He said manageable inflation, a stable banking sector, and robust external payments position, among other fundamentals, will support recovery and help keep the economic effects of the pandemic temporary.

“The Philippines’ economic fundamentals remain sound. While the pandemic poses challenges in the short term, the country continues to enjoy bright medium- and long-term growth prospects,” said the central bank chief.

BSP estimates that inflation will slightly exceed the 2.0 to 4.0-percent target range this year due to supply factors but will ease toward the midpoint of the target band next year and in 2023. Manageable inflation will continue to provide an enabling environment for investments and, therefore, job creation and income growth.

In terms of banking sector stability, banks in the country have kept their capitalization and liquidity buffers well above the regulatory requirements, and their exposure to bad debts manageable throughout the crisis. As such, banks will remain capable of supporting the growth of the economy.

On the country’s external accounts, the BSP Governor said buffers are sufficient to manage the impact of shocks, including market reaction over the pending move of the US Federal Reserve to normalize its monetary policy.

“Our external liquidity buffers continue to be more than adequate,” the Governor said. “Our hefty GIR (gross international reserves), steady inflows from remittances and BPOs (business process outsourcing), and recovery of exports and FDIs (foreign direct investments) will support the peso.”

The GIR, based on preliminary data, reached USD 108.05 billion as of end-August this year, higher than the country’s outstanding external debt. The latest data showed that external debt amounted to USD 97 billion as of end-March this year.

The Governor said the peso, which has depreciated by 3.5 percent against the US dollar since the start of the year, remains relatively stable. The manageable weakening of the local currency against the US dollar was broadly in line with the behavior of other emerging market currencies, as demand for the dollar rises amid the anticipated policy normalization by the Fed.

Governor Diokno said the country’s flexible exchange rate policy helps protect the peso against speculative attacks. “The market-determined exchange rate is our first line of defense against external shocks,” the Governor said.

Meanwhile, based on latest government projections, which partly consider the country’s sound macroeconomic fundamentals, the economy will grow anywhere between 4.0 and 5.0 percent this year and accelerate to a range of 7.0 to 9.0 percent next year.

The BSP Governor cited whole-of-government efforts in the Philippines not only to recover from the crisis but to place the Philippines back to its pre-pandemic path toward greater heights over the medium to long term.

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