Consumer spending seen to remain strong

Consumption by Filipino households is expected to remain robust in 2013 despite the dampening effects of the peso strengthening on the value of foreign exchange remittances.

According to the Bangko Sentral ng Pilipinas, the adverse impact of the peso’s appreciation on the value of remittances is countered by the positive effect of the same on overall inflation.

BSP Deputy Governor Diwa Guinigundo said that because of the strong peso, the cost of imported goods in peso declined, keeping overall inflation benign.

“The firmness of the peso has some dampening impact on consumption expenditure (due to the reduced peso value of dollar remittances], but it also can help ease inflation. And if prices are kept stable, consumption is encouraged,” Guinigundo said in a press conference following the government’s economic briefing held at the Philippine International Convention Center (PICC) on Wednesday.

The BSP expects household consumption to remain a key economic growth driver 2013. It also sees investments gradually increasing its contribution to growth.

The government aims to keep inflation within 3 to 5 percent this year and next year.

“We [the BSP] expect domestic inflation to stay within the 3 to 5 percent range. This means the BSP will have enough monetary space to continue providing an environment where credit and liquidity growth will remain supportive of sustainable economic growth,” Guinigundo said.

He said the low inflation rate allowed the BSP to keep interest rates low, and with the low interest rate environment, individuals and businesses were expected to borrow more to support consumption and investments.

The BSP does not set an exchange rate target but it intervenes in the market to avoid too much volatility.

Last year the peso rose by nearly 7 percent against the US dollar to become one of the fastest-appreciating Asian currencies against the US dollar. It closed at 41.05:$1 on the last trading day of the year.

The appreciation of the peso has elicited concerns among exporters. They said this made Philippine export goods more expensive and, therefore, less competitive.

Some economists also said the rising peso might eventually cause a drag on household spending, particularly consumers who were dependent on remittances.