BSP chief expects slower growth this year

Published by rudy Date posted on May 28, 2011

Manila, Philippines – The Bangko Sentral ng Pilipinas (BSP) sees the country’s economy growing slower than expected this year due to the political tensions in the Middle East and North African (MENA) states as well as the disasters that struck Japan last March.

BSP Governor Amando Tetangco Jr. in an interview with reporters on the sidelines of the launching ceremonies of the annual Citi Microentrepreneur of the Year Awards said that the country’s gross domestic product (GDP) would continue to expand this year although lower than the original target.

Economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) see the country’s GDP expanding between seven percent and eight percent this year.

“We think the economy will continue to grow this year. The government is projecting seven percent to eight percent although that projection was arrived at prior to the events at the MENA region as well as the earthquake, the tsunami and the nuclear disaster in Japan,” Tetangco stressed.

He pointed out that the crisis in the MENA region and the disasters in Japan would have a negative impact on global growth in the short term.

“We may be affected by that and therefore we should not be surprised if the growth rate for this year turns out to be lower than the seven percent to eight percent target,” he added.

The BSP chief explained that the rebuilding and reconstruction process in Japan would have a positive impact on global economic growth.

“In the medium to long term, the expectation is that because of the rebuilding and the reconstruction that will have to be done by Japan that will have a positive impact on economic growth. So the negative impact is expected to be short term or temporary and in the longer term it will be positive,” Tetangco said

Earlier, Socioeconomic Planning secretary Cayetano Paderanga said the country’s GDP likely expanded between 4.8 percent and 5.8 percent in the first quarter of the year.

The Philippines posted its strongest growth in 34 years after its GDP expanded by 7.6 percent last year exceeding the revised five percent to six percent growth target set by the DBCC. Economic managers originally expected the country’s GDP to expand between 2.6 percent and 3.6 percent last year.

The country was on the verge of a recession after its GDP growth slackened to 1.1 percent in 2009 from 3.8 percent in 2008 due to the full impact of the global financial crisis.

The BSP chief said the country’s inflation is likely to peak either in the second quarter or third quarter of the year amid the escalating prices of oil and commodities in the world market.

In fact, the BSP sees inflation this month exceeding the higher end of the central bank’s three percent to five percent target on the back of the seasonal increases in school supplies in light of the opening of classes in June, remaining adjustments in taxi fare, and the impact of the Aquino administration’s fuel subsidy program.

The BSP said inflation for the month of May would range from 4.5 percent to 5.5 percent despite lower oil price in the world market.

Inflation kicked up to a one-year high of 4.5 percent in April bringing the average inflation to 4.2 percent in the first four months of the year from 4.3 percent in the same period last year.

The BSP’s Monetary Board has so far raised interest rates by 50 basis points in two consecutive policy rate setting meetings in March 24 and May 5 as a preemptive move to keep inflation expectations well anchored amid the escalating global oil prices.

The overnight borrowing rate now stands at 4.50 percent and the overnight lending rate is pegged at 6.50 percent after monetary authorities raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 due to elevated oil prices.

BSP Deputy Governor Diwa Guinigundo said inflation expectations for 2011 would have gone up to 5.6 percent and for 2012 would have increased to 4.2 percent had monetary authorities kept interest rates unchanged.

With the rate hike, Guinigundo said inflation expectations for 2011 and 2012 is now back to within the target of three percent to five percent set for 2011 until 2014.

He added that the 50 basis point rate hike so far could still be accommodated within affecting the pace of the country’s strong economic recovery.

Prior to the rate hike last March, the central bank managed to keep interest rates steady for 20 straight months since July 2009 due to benign inflation outlook. The BSP slashed its key policy rates by 200 basis points between December 2008 and July 2009 to cushion the impact of the global financial crisis on the domestic economy. –Lawrence Agcaoili (The Philippine Star)

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