Domestic demand to remain strong

Growth in domestic demand, led by household consumption, is expected to remain robust throughout the year given a low inflation and interest rate environment.

According to the Bangko Sentral ng Pilipinas, benign inflation and low interest rates provide an environment favorable for household consumption and investments by both the public and private sectors.

“The economy continues to feed on strong domestic demand,” BSP Assistant Governor Ma. Cyd Tuaño-Amador told reporters.

In the first quarter, the economy grew by a faster-than-expected rate of 6.4 percent on the back of a significant rise in household and government spending. A moderate increase in private sector investments also contributed to the growth.

Household consumption grew by 6.6 percent, while government expenditure rose by 24 percent during the period. Investments in fixed capital formation, which is led mainly by private sector investments, grew by 2.8 percent.

The economy’s performance in the first quarter boosted confidence in the government that the full-year gross domestic product growth target of 5 to 6 percent would be achieved if not surpassed.

Inflation in the first four months of the year averaged 3 percent, which is the low end of the projected range for the year of 3 to 5 percent.

In the meantime, the BSP’s key policy rates remained at historic lows of 4 and 6 percent for overnight borrowing and lending, respectively.

The BSP hinted it would keep interest rates at current levels when the Monetary Board meets for policy rate setting on June 14.

BSP Governor Amando Tetangco Jr. said the central bank had the flexibility to keep interest rates at record lows because price pressures remained soft.

“At the moment, our policy rates remain appropriate especially as our forecasts continue to show full-year average inflation to be closer to the lower end of the target range,” he said.