Despite challenges, BSP sees economy sustaining growth

The Philippine economy has “anchors of stability” that will keep it afloat despite emerging risks, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said yesterday.

At the Security Bank Economic Forum 2017, Espenilla told participants that he saw the tightening global conditions, volatility of the peso and the risk of overheating as among the major challenges faced by the economy.

But as a whole, Espenilla said, the Philippines was able to sustain robust macroeconomic fundamentals, such that prospects remained bright and growth would be strong on expectations that both government and private sector investments would rise.

“We are ready to deploy the full array of our monetary policy toolkit in case of changes to deal with possible market volatility as policy settings evolve and normalize in the US and other advanced economies,” Espenilla added.

In the case of the peso, Espenilla admitted that its depreciation “has been the cause of some market unease,” although he said “such concern is overdone.”

The peso has been hitting 11-year low levels since the middle of the year.

“The peso’s moderate and controlled depreciation mirrors bullish economic growth, indicated by strong imports demand, residents’ increased direct and portfolio investments abroad for expansion and risk diversification, as well as public and private sector debt prepayments to manage foreign exchange risks,” he said.

“The peso is expected to be broadly stable over the medium term backed by strong underlying economic fundamentals, ready market access, and robust international reserves,” Espenilla said.

He said the country had additional liquidity buffers from its regional safety net arrangements with countries like Japan and the Asean. Sustained inflows from overseas Filipinos’ remittances, business process outsourcing, tourism receipts and strong recovery in exports further support the peso, he added.

As for concerns that the economy could overheat, Espenilla said “we do not believe we are there yet, and we remain very vigilant to avoid it.”

Early this month, the International Monetary Fund flagged potential overheating due to strong credit growth in the Philippines.

Espenilla, however, said the current pace of credit growth was manageable.

“Our credit-to-GDP [gross domestic product] ratio of 63.6 percent as of the second quarter of 2017 is still one of the lowest by far in Asia, indicating relatively low overall leverage. Bank loans are diversified across economic sectors, and are backed by durable economic activity with 89 percent going into production sectors. Moreover, BSP monetary operations indicate just sufficient domestic liquidity to support expansion and amid strong growth in liquidity, inflation dynamics remain very manageable,” Espenilla pointed out.

Meanwhile, Maybank Kim Eng economics research regional head Suhaimi Ilias said in a separate forum that he was expecting a 50-basis point hike in the policy rate next year due to domestic risks.