By Chino S. Leyco
The aggressive series of monetary tightening of the Bangko Sentral ng Pilipinas (BSP) last year was not a significant drag on the country’s economic growth this year, the Department of Finance (DOF) said late Wednesday.
Finance Secretary Carlos G. Dominguez III (DOF photo / Howard Felipe)
Finance Secretary Carlos G. Dominguez III said the cumulative rate hikes at 175 basis points in 2018 should not be blamed for the below target 5.6 percent gross domestic product (GDP) in the six months of the year.
Dominguez maintained the slower economic expansion was mainly due to the delayed passage of the 2019 general appropriations act (GAA), which affected public spending on critical infrastructure projects.
While government spending only accounts for about 20 percent of GDP, Dominguez said its disbursements were targeted at enticing the private sector, which controls the remaining 80 percent, to invest in the local economy.
“It’s a critical 20 percent, because it is spent on infrastructure and infrastructure has a huge multiplier effect,” Dominguez told reporters in a briefing at the DOF headquarters.
“You start cutting down on infrastructure expenditures, not many people are going to be hired, you are not going to have as many sales of cement and everything. So, the reason the business did not do so well is because of that,” he added.
The finance chief also cited that despite higher interest rate environment, publicly listed companies continued to show positive growth in earnings during the first semester.
“I'm talking about the first half of 2019, you know it could have been even higher than that ,” he said.
Finance Undersecretary Gil S. Beltran, meanwhile, said the five rate hikes of up to 175 basis points dragged down the GDP in the first-half by only 0.4 percentage point, but it is expected to decline in the second-semester.
The recovering of public spending, along with the decelerating inflation rate now at 0.9 percent, Beltran said are giving the BSP an extra room to further reduce its key interest rates by another 25 basis points.
Last month, the Monetary Board of the BSP trimmed its benchmark interest rates for the third time this year, placing the central bank’s overnight reverse repurchase, as well as overnight deposit and lending to four percent, 3.5 percent and 4.5 percent, respectively.
A day after the policy rate setting meeting, the BSP also slashed its reserve requirement ratio (RRR) by one percentage point to 15 percent for big banks, five percent for thrift banks and three percent for rural and cooperative banks.
BSP Governor Benjamin E. Diokno said that there would be no more policy rate cut this year while banks’ RRR might still be reduced before January next year.
Asked if he agrees with the BSP governor’s assessment, Dominguez, who also sits on Monetary Board, said that Diokno and other members will “look at it again” in their two remaining meetings before 2019 ends.
The finance chief also said that “we have a lot of leeway to go” to further lower banks’ RRR, which Diokno plans to reduce to a single-digit level by the time he ends his term as governor in 2023.