Strong GDP growth gives BSP policy space – Espenilla

Published January 23, 2018, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. yesterday said the country’s continued solid growth allows them room to keep its inflation target intact.

“The strong Gross domestic product (GDP)result in the fourth quarter, and in 2017 overall, confirm the underlying strength of the economy that rests on increasingly balanced foundation,” Espenilla commented after the government announced a 6.6 percent GDP growth for the fourth quarter on Tuesday. This brings the full-year growth to 6.7 percent which was lower than 2016’s 6.9 percent.

Nestor A. Espenilla Jr.
Nestor A. Espenilla Jr.

Espenilla as BSP chief is in charge of containing and managing inflation that is still supportive of GDP expansion. He said the robust economy “gives the BSP ample policy space to stay focused on meeting its inflation target and pursuing ambitious financial sector reforms.”

The 6.7 percent full-year growth is within the government’s target of 6.5 percent to 7.5 percent for 2017. The fourth quarter’s 6.6 percent growth is lower compared to the previous quarter’s 6.9 percent.

The economy has been reporting positive numbers for the last 76 quarters while the inflation rate is consistently within BSP targets.

Espenilla has often said that risks to the inflation outlook is one of the BSP’s main challenge. These risks come from the external side particularly from the volatile oil market prices and geopolitical issues that affect these prices.

“Our inflation forecasts are being updated to consider the recent increase in crude oil prices, implementation of the tax reform program and peso movement,” he said last week. “We remain vigilant and ready to timely respond to second-round effects and possible shifts in inflationary expectations.”

Inflation rate averaged at 3.2 percent in 2017 which was within the target band. Ample liquidity, along with robust domestic economic activity, supports within-target inflation, said Espenilla.

For this year and in 2019, inflation rate is projected to settle above the midpoint of the target range of two percent to four percent.

BSP Deputy Governor Diwa C. Guinigundo said earlier that while the tax reform program will impact on inflation, any pressure on prices will be short-term.

Guinigundo has said that the estimated one percentage point impact of the tax reform program on inflation “hardly justifies a monetary response” since it will be on the supply side. He noted that when second round effects are triggered, they will “consider adjusting our monetary stance… because the demand side would be upset, generating demand pressure for higher wages and higher transportation fares.”

The Monetary Board’s first policy meeting this year is on February 8. The BSP hasn’t touched its key rates in three years.