Economic growth assured

Published by rudy Date posted on May 9, 2011

The Bangko Sentral said the latest increase in its borrowing rate will not derail economic growth in the Philippines this year.

“Based on what we see, in terms of the forecasts of the Asian Development Bank, International Monetary Fund and our own study, the economy will continue to grow robustly and therefore the 50 basis point increase so far can very well be accommodated by the economy,” Bangko Sentral Deputy Governor Diwa Guinigundo said over the weekend.

The Bangko Sentral on Thursday raised its overnight borrowing and lending rates by 25 basis points, which followed a similar rate hike in March.

“Manufacturing continues to show resiliency. Vehicles sales of all types, utility, commercial and passenger, continue to show a double-digit growth despite the rising fuel cost. So that means that the economy could absorb the 50-basis point increase in the policy rate of the Bangko Sentral,” he said.

The government set a gross domestic product growth target of 7 percent to 8 percent for the year, although some economists warned this might be slowed by higher interest rates, once the Bangko Sentral begins its tightening of monetary policy.

However, Guinigundo said there remained adequate funds circulating in the system that would fund various activities in the economy. “Therefore, a 50 bps increase can very well be absorbed without materailly affecting the pace of economic growth,” he said.

“We have penciled in another 25 basis point hike at the next meeting and the one after. Further tightening should help to rein in inflation expectations without derailing growth,” Sherman Chan, a Hong Kong-based economist at HSBC Holdings Plc. Chan.

Prakriti Sofat, an economist at Barclays Capital, expects the Bangko Sentral to take a breather in June, and resume its tightening with another 25 basis point hike in July, given expectationS that inflation will exceed 5 percent by middle of the year.

Sofrat said the Bangko Sentral may allow some appreciation of the peso to lean into imported price pressures. “Against this backdrop, we continue to expect the peso-dollar rate to drift to 42.50 in three months and 41.50 by year-end,” she said. –Roderick T. dela Cruz, Manila Standard Today

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