BSP: Clearer proof of economic recovery needed, interest rates to stay low

MANILA, Philippines—The central bank on Tuesday (Nov. 9) said interest will remain low—despite the stronger-than-expected third quarter growth figures announced by the government—until it sees clearer evidence of economic recovery.

In a statement following the release of the latest gross domestic product numbers, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the agency “will continue to be patient with its accommodative monetary policy stance to support the economy’s full recovery.”

The BSP has come under increasing pressure in recent weeks from critics to raise its key interest rate, currently at a historic low of 2 percent for its overnight borrowing rate, due to stubbornly high inflation.

The lower-than-expected inflation rate for October, however, combined with stronger economic growth data may give the BSP scope to maintain its loose monetary policy until early next year.

“Faster growth may give Governor Diokno room to adjust rates in the first half of 2022,” ING Bank Manila senior economist Nicholas Mapa said.

The BSP chief said that the growth rate for the third quarter—which came in above BSP’s forecast of 6.2 percent—“increases the likelihood that the revised growth projection of 4 to 5 percent in 2021 would be exceeded.”

“Growth was broad based, except agriculture which contracted largely due to severe weather disturbances,” Diokno said.

Household spending rose 7.3 percent, fixed capital investment jumped 16 percent and government spending rose 13.6 percent.

While net trade was negative as imports outgrew exports, the 13.2 percent increase in imports “should be seen in a positive light as a leading indicator of more robust economic activity in the near term,” he said.

On the production side, the services sector, which accounts for about 60 percent of GDP, rebounded by 8.2 percent, and the industrial sector grew 7.9 percent.

TSB