Gov’t spending seen enough to boost economic growth

The central bank will keep its finger off the trigger on interest rate adjustments in the coming months, confident in fiscal authorities’ ability to ramp up spending to get the economy’s engines revving faster.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the responsibility for getting the economy performing better would stay with the government for now.

In an e-mail to reporters at the weekend, the central bank chief said there was “no strong impetus to provide support to growth, given that the government was expected to ramp up infra spending in coming months.”

This comes following a disappointing first quarter for the Philippine economy, which grew at 5.2 percent or below state targets. Gross domestic product (GDP) will have to expand by more than 7 percent in all succeeding quarters for the government’s GDP growth target of 7 to 8 percent to be hit.

Consumer price movements have also slowed to record lows, prompting some private sector observers to suggest that a cut in the BSP’s interest rates would be warranted.

Government data this month showed inflation in May slowing to 1.6 percent, the lowest on record, due to cheap fuel and the more stable supply of food. “The data raised the likelihood of BSP policy rate cut,” ING bank said in a note to clients Monday.

The BSP’s overnight borrowing and lending rates currently stand at 4 and 6 percent, respectively.

For all of 2015, the BSP wants to keep inflation within a range of 2 to 4 percent. The BSP’s main goal is to protect consumers’ purchasing power by keeping price movements within target.

A cut in the BSP’s benchmark interest rates, which influence the cost of money in the economy, may lead to stronger consumer demand, helping prop up inflation. This may backfire, however, if loose monetary settings lead to excess consumer demand, compounded by a possible reversal in commodity prices.

“It is possible that we can see inflation in next periods below the low end of the target range, given inertial inflation and base effects,” Tetangco said. Last year, inflation peaked at 4.9 percent in July and August. As a result, consumer price movements may slow further due to year-on-year base effects.

But he said the BSP was also aware of upside risks, chief of which was the prospect of a prolonged dry spell in the country due to El Niño. “Right now, as we see it, inflation expectations are well-anchored.”