BSP douses inflation fears

Bangko Sentral is confident it can manage the inflationary pressures of an economic growth of up to 8 percent, as long as the government does not resort to huge borrowings and wasteful spending.

“As long as public finance is not premised on huge borrowings and wasteful spending, the impact of higher economic growth on inflation is something Bangko Sentral can manage,” Deputy Gov. Diwa Guinigundo said.

Guinigundo made the comment in response to the gross domestic product growth target of up to 8 percent set by the new economic managers last week.

The inter-agency Development Budget Coordination Committee kept the growth target of 5 percent to 6 percent for the current year but raised next year’s growth target to a range of 7 percent to 8 percent from the previous forecast of 3.8 percent to 4.7 percent.

Guinigundo cited instances in the past when the Philippines achieved a convergence of high economic growth and stable inflation.

In 2007, the country’s gross domestic product grew 7.1 percent while inflation rate settled at just 3.9 percent.

“That is close to an ideal situation that should be made durable over the long term,” the Bangko Sentral official said.

Bangko Sentral is also not worried over the decision by DBCC to raise the ceiling for the government’s budget deficit this year by P31.8 billion to P325 billion, representing 3.9 percent of the gross domestic product in 2010.

“The increase in the deficit was in recognition of the need to do urgent infrastructure spending and higher social spending in terms of more school buildings, medical facilities and agricultural support,” Guinigundo said.

“Even if the deficit has been increased, its relative size to GDP remains manageable at below 4 percent. At the same time, its impact on public liability is believed to be modest while the impact on economic growth is excitingly very promising,” he added.

Guinigundo said a higher budget deficit was not expected to upset the relative stability of both interest rates, which are at historical low levels, and the foreign exchange rate, which remains broadly competitive.

“If this new modality catches the imagination and support of the markets and the investors, we might in fact experience additional foreign exchange inflows,” he said. –Roderick T. dela Cruz, Manila Standard Today