The economy is expected to grow over six percent this year, supported by a central bank that will hold its accommodative policy stance to sustain the growth momentum, said Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
Diokno said an above-target GDP “suggest that the country’s real output will revert to its pre-pandemic level by the third quarter of 2022, if not sooner.” His previous projection was that GDP growth may return to pre-COVID levels by the first quarter of 2023.
Diokno on Sunday, Nov. 14, said the latest inflation forecast for 2021 is now 4.3 percent, lower than its previous (September 23) projection of 4.4 percent. The 2021 inflation forecast is still beyond the 2-4 percent target. The forecasts for 2022 and 2023 are unchanged at 3.3 percent and 3.2 percent, respectively.
“The GDP prospects appear bright,” said the BSP chief. “With the adjusted second quarter GDP real growth of 12 percent, followed by a 7.1 percent growth in the third quarter, a 2021 full year growth rate of 5-6 percent is attainable. Based on recent developments including the ramped up vaccine rollout and the ebbing COVID-19 cases, the DBCC’s (Development Budget Coordination Committee) GDP growth targets of 7-9 percent in 2022 and 6-7 percent in 2023 look doable,” he added.
Diokno said the decelerating inflation trend is enough reason for the BSP “to be patient” and to “continue its accommodative monetary policy stance given the current domestic, external and financial developments.” The inflation rate in October declined to 4.6 percent from September’s 4.8 percent and from August’s 4.9 percent. It was in the lower band of the BSP’s October inflation forecast range of 4.5 percent to 5.3 percent. Stable prices of meat and fish eased inflation pressures in October.
Diokno reiterated that the Monetary Board will stick to a two-percent benchmark rate for the rest of the year in aid of sustaining the growth momentum. The BSP policy rate has not been changed since November 2020. There are only two Monetary Board policy meetings left for this year, and the next one is on Nov. 18.
Diokno also said on Sunday that the peso vis-à-vis the US dollar will continue to appreciate after it closed below P50 last Friday. “The threat of peso depreciation is fading as the peso is expected to appreciate, with the prospect of stronger OF (overseas Filipinos) remittance inflows in the last few weeks of the year in time for the Christmas holidays,” he said. The peso was last traded at P49.85:$1.
The BSP continues to assess that there is no emerging second-round effects to inflation such as a wage increase.
Diokno said there is “sufficient slack in the labor market” and that with the “expected higher participation rate as workers re-enter the work forces” there seems to be “little likelihood of a wage hike as the vaccine rollout quickens and consumer confidence rises while economic activity expands.”
In the meantime, the BSP is not detecting any price pressures from the rising real estate values. “(The) increase in real property prices in the National Capital Region (NCR) are either flat or slightly down, though there is a slight increase in prices in few places outside NCR,” he noted.
Based on the BSP’s Residential Real Estate Price Index (RREPI), housing prices in the second quarter declined by 9.4 percent year-on-year due to subdued housing demand amid the pandemic especially in the NCR. Housing prices on a quarter-on-quarter basis however, went up by 4.8 percent because of the higher prices of all types of housing units such as single detached/attached houses, duplexes, townhouses, and condominium units.
Throughout the pandemic, the BSP has implemented liquidity-enhancing measures to boost financial market confidence and to provide financing for the economy.
The BSP has reduced the policy rate by 200 basis points and the current two percent rate is the lowest interest rate on record. The central bank also cut banks’ reserve requirements from 14 percent to 12 percent.
“This policy stance has contributed to a general decline in lending rates across all loan product categories,” said Diokno.
He noted that housing loans’ weighted average interest rate has declined to 6.6 percent as of end-June this year from eight percent in end-March 2020. The average rate for corporate loans also dropped to 4.9 percent from 5.9 percent in the same period.
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.