BSP: 7% to 8% PH growth target attainable

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BSP: 7% to 8% PH growth target attainable
The government target is attainable as domestic demand conditions remain firm, supported by improving production efficiency and robust labor market dynamics, says BSP Governor Amando M. Tetangco Jr

MANILA, Philippines – The central bank  remains bullish that the Philippine economy would expand this year within the government target of 7% to 8%.

In his speech at the Euromoney Investment Forum on Tuesday, March 24, Bangko Sentral ng Pillipinas (BSP) Governor Amando M. Tetangco Jr said the government’s target “is attainable as domestic demand conditions remain firm, supported by improving production efficiency and robust labor market dynamics.”

Inflation expectations also remain “well-anchored,” Tetangco said.  (READ: Inflation within target for 6th consecutive year – BSP)

“Very broadly, we see the country continuing to grow in a stable inflationary environment. We believe liquidity is sufficiently calibrated and that it would support broad-based growth without fuelling inflation which we monitor particularly in view of policy normalization in the US,” he added.

Tetangco said that on the banking side, the system will continue to be characterized by “solid asset growth, improved quality of loans and assets, strong capitalization, and better risk management practices.”

He said the BSP sees the external current account “remaining in surplus as exchange inflows from overseas Filipinos  remittances, business process outsourcing (BPO) revenues, as well as tourism receipts are seen to continue to grow.”

“Given the positive alignment between inflation and growth, and augmented government resources as a result of fiscal consolidation, both the monetary and financial sectors have sufficient room to make policy adjustments, as may be warranted,” Tetangco said.

Also on Tuesday, the Asian Development Bank maintained its growth forecast for the country of 6.4% in 2015, and 6.3% in 2016.  (READ: ADB: Private consumption to boost PH economy in 2015)

The ADB had slashed its 2014 performance forecast for the Philippines by 0.2 percentage points to 6%. It previously projected Philippine growth to slow down to 6.4% in 2014 and 6.7% in 2015, from 7.2% in 2013.

The forecasts are below the government targets of 6.5%-7.5% for 2014 and 7%-8% for 2015.

External risks

But the governor warned of the risks from the external side, which he described as an “interplay” of  the following:

  • The uneven global economic growth
  • The uncertainty of the oil price path and the ambiguity of the underlying drivers of the oil price decline
  • The resulting divergence in monetary policy stance among major advanced economies which could impact the rosy outlook for the country thus there is no room for complacency

“The BSP will continue this strategy of using what it deems as appropriate from the whole range of tools available in its enhanced tool kit. I believe the domestic markets have come to understand this. They now appreciate that the BSP’s approach to responding to challenges is really to be pro-active, pre-emptive, and prudent,” Tetangco said.

BSP kept key policy rates steady as inflation was forecast to remain within the target bands until 2016. The overnight borrowing and overnight lending rates were adjusted in the third quarter of 2014.

The next pollicy rates meeting is set on Thursday, March 26.

Meanwhile, factors that pumped up private consumption in 2014 are expected to continuously fuel growth in 2015, the ADB said.

“Growth in employment, modest inflation, and higher inflows of remittances are expected to continue to support solid growth this year,” said Richard Bolt, ADB country director for the Philippines.

But Bolt cautioned that while the economic outlook for the country is bright, the government still has to stimulate employment growth and continuously address gaps in infrastructure.

For his part, Tetangco said that apart from the country’s strong fundamentals, the government’s commitment toward sustaining its structural reform agenda would lend critical support to achieving the country’s growth potential.

“I’m confident that we will be able to attain our goal of an upward economic growth trajectory, in an environment of price and financial stability because we will remain pro-active in policy dialogue with stakeholders such as yourselves, pre-emptive in putting in place forward looking policies, and prudent in adopting reforms,” Tetangco said.

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