BSP expected to start tightening monetary policy

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The central bank may finally start sending signals by next month on the possible tightening of its monetary policies to keep the country’s booming economy from overheating, the Institute of International Finance (IIF) said.

In a research note this week, IIF noted signs of the possible overheating of the Philippine economy, which the firm expects to grow by 7 percent this year.

These signs may lead to an acceleration in price increases, the IIF said, undermining the purchasing power of local consumers.

“Preserving economic and financial stability will fall mostly on monetary policy, suggesting that the Monetary Board is likely to signal it is leaning toward tightening at its next scheduled meeting on Sept. 12,” IIF said.

The firm said the continued expansion in the country’s money supply, if not kept in check, would lead to price pressures that could threaten the stability of local financial markets.

“The strong momentum in the economy and abundant liquidity has shifted the risk ahead from growth to overheating,” IIF said.

The research firm credited the Aquino administration for the improvement in revenue collections that has kept the country’s fiscal deficit at around 2 percent of gross domestic product, despite increased spending on infrastructure projects.

Efforts to promote good governance have helped raise the country’s profile internationally, attracting foreign investors even at a time of financial market volatility.

This continuing stream of foreign money, coupled with the flow of overseas Filipino workers (OFW) remittances pushed domestic liquidity or M3 growth levels past the 20-percent market last June.

“An important factor underlying the financial market volatility has been the rising global prominence of the Philippines,” IIF said. “The current government’s success in building a record of fiscal control and improving public governance has helped assuage a long period of risk aversion and neglect by foreign investors,” it added.

IIF said a signal to the potential tightening of monetary policies could help maintain the stability of the financial system in the face of growing liquidity.

Earlier this month, BSP Deputy Governor Diwa C. Guinigundo warned that a protracted period of high M3 growth may pose risks to the Philippine economy if it leads to higher inflation.

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  • eight_log

    Two weeks ago BSP reported a modest 2.5% inflation …. looks like they intend to increase that to a “manageable” level … lol!!!! It beats me how they are able to manage inflation when they do not have a proper understanding what causes prices to increase!!!???

  • joboni96

    first PAY ALL FOREIGN LOANS
    USING FOREIGN RESERVES

    ng makabawi mga pilipno sa
    mataas niyong sweldo at commission

  • carlcid

    When the screws are tightened on interest rates and monetary easing, the bubbles in the Philippine economy will become more and more apparent.

  • Hayek_sa_Maynila

    Aside from fast GDP growth what other indicator did IIF cite to conclude that we risk overheating? Why are they so eager to see higher interest rates in the PHL? Looking for higherreturns on speculative funds?

  • TruthHurts

    The IMF’s reputation has been so dark globally that they now have to use the influence of the IIF and the BIS to intervene on their behalf. Again, and as always, the poor naive Filipino is biting the bait like a dog about to be slaughtered. I wouldn’t be surprised in the next few months and years to read something totally dismal related to this BSP action.

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