BSP remains vigilant over potential economic overheating

MANILA, Philippines – The chief of the Bangko Sentral ng Pilipinas (BSP) said the Philippine economy has not overheated yet, but if it does show signs of overheating, the central bank would be ready to step in.

An overheated economy happens when good economic growth causes high inflation rates and inadequate supply allocations, resulting from excessive production capacity in an attempt to cash in on high levels of wealth.

BSP Governor Nestor Espenilla Jr said at the Security Bank Economic Forum 2017 in Makati City on Tuesday, November 21, that the central bank remains vigilant over economic overheating.

“We do not believe that we are there yet and we remain very vigilant to avoid it,” Espenilla said in his keynote speech.

He added that the current pace of credit growth, which was at 21.1% in September, remains manageable. (READ: FAST FACTS: What does the Bangko Sentral ng Pilipinas do?)

Espenilla also said the Philippines’ credit-to-gross domestic product (GDP) ratio of 63.6% as of the 2nd quarter of the year is still “one of the lowest in Asia.”

According to the BSP governor, bank loans are diversified across economic sectors and are backed by durable economic activity, as 89% of the total credit went to the production sector.

He added that the BSP’s monetary operations indicate sufficient domestic liquidity to support expansion. The amount of money in the financial system expanded by 14.5% to P10.14 trillion in September.

“Amid the stronger growth in liquidity, inflation dynamics remain very manageable. Key indicators of credit expansion are likewise below established international thresholds,” Espenilla said.

The Philippines has booked a positive GDP growth for 75 straight quarters, with 6.9% in the 3rd quarter of 2017, faster than the revised expansion of 6.7% in the 2nd quarter of the year, but still slower than the 7% growth in the 3rd quarter of 2016.

This brought the GDP expansion in the first 3 quarters to 6.7%, slightly above the lower end of the 6.5% to 7.5% target set by the Development Budget Coordination Committee (DBCC). – Rappler.com