Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said Tuesday, Nov. 9, they will exercise patience and will prolong a low interest rate environment for as long as necessary to boost economic growth, which he now expects to exceed the 4-5 percent target for 2021.
“The BSP will continue to be patient with its accommodative monetary policy stance to support the economy’s full recovery,” said Diokno. A loose monetary policy stance means expansion of money and credit, along with fiscal stimulus and low interest rates.
The government reported on Nov. 9 that gross domestic product (GDP) grew by 7.1 percent year-on-year in the third quarter, which is higher than BSP’s internal GDP growth forecast of 6.2 percent.
The latest GDP growth is slower than the revised 12 percent expansion in the second quarter 2021 but a huge reversal from the 11.6 percent contraction same period in 2020.
“This stronger than expected growth — versus BSP’s forecast of 6.2 percent for example -- increases the likelihood that the revised growth projection of 4-5 percent in 2021 would be exceeded,” said Diokno.
Diokno noted that except for agriculture sector which declined due to bad weather this past months, growth was broad based. Household spending was up by 7.3 percent while fixed capital investment rose by 16 percent. Government spending also went up by 13.6 in the third quarter.
On the production side, the services sector which accounts for about 60 percent of GDP rebounded by 8.2 percent, he added, while the industrial sector grew 7.9 percent year-on-year.
“While net trade is negative — 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,” said Diokno.
Diokno has said that GDP growth may return to pre-COVID levels by the first quarter of 2023 and this will depend on how fast economic sectors will open up and the vaccination program. But if evolving outlook for inflation and growth allows, he also said that BSP will try to maintain an accommodative monetary policy stance to help boost domestic demand and support market confidence.
The BSP has always said that it has the ample monetary policy space to remain accommodative or expansionary in terms of policy stance in order to stimulate private consumption and investment. Since November 2020, the benchmark rate has been steady at two percent, the lowest BSP policy rate on record.
For 2021, the BSP has a GDP growth assumption of four percent which is the low end of the 4-5 percent target. For next year, it forecasts seven percent, also the low end of the 7-9 percent target.
Despite the high inflation due to transitory factors, inflation is projected to ease towards the midpoint of the two-four percent target in 2022 and 2023. The BSP forecasts an average 4.4 percent inflation for 2021 and 3.3 percent in 2022.