Monetary officials upbeat on economy

PROSPECTS for the Philippine economy remain rosy given robust demand conditions, monetary authorities noted during a policy meeting last month, with reconstruction efforts following last year’s calamities also expected to provide a boost.

Despite a first quarter slowdown in gross domestic product (GDP) growth — a below-target 5.7% from last year’s 7.7% — the Bangko Sentral ng Pilipinas’ policy-setting Monetary Board (MB) said overall growth would still be strong.

“The outlook for economic activity continues to be favorable on the strength of consumer spending, as evidenced by the trend of various demand indicators,” according to highlights of the June 19 meeting that were released yesterday.

“Vehicle and electricity sales remain brisk, the composite PMI (Purchasing Managers’ Index) has stayed firmly above the 50-point neutral threshold, and the outlook by consumers and businesses continues to be generally upbeat.”

The MB said manufacturing activity and exports likewise remained broadly steady.

“The outlook for domestic demand conditions is also likely to benefit from continued typhoon-related reconstruction and rehabilitation spending in 2014,” it said.

Inflation, meanwhile, is expected to stay within the 3-5% and 2-4% target ranges for this year and the next, albeit at the upper bounds of both goals.

In the June 19 meeting, the inflation forecast for this year was raised to 4.4% from 4.3%, while that for 2015 was likewise hiked to 3.7% from 3.4%. As of June, inflation averaged 4.2%.

“The balance of risks to prices remains tilted toward the upside. Potential price pressures continue to come from pending petitions for increases in electricity rates and possible uptick in food prices,” the MB said.

“In addition, the likelihood of a continued strong liquidity growth is still seen as posing a risk to future inflation. Nevertheless, the recent adjustments in the reserve requirement ratios are seen to help mitigate inflation risks from strong liquidity growth.”

A downside risk to inflation, it noted, could emanate from potential growth slowdowns in key emerging markets and the risk of deflation in advanced economies. Monetary authorities, however, said the global economy’s recovery seemed on track.

“[G]obal growth prospects have remained broadly stable. Advanced economies continue to support the global growth momentum, driven by brisk economic activity in the US and the strengthening recovery in the euro area,” it said. “Meanwhile, the pace of growth in major emerging markets remains subdued.”

“Going forward, the MB emphasized the need to pay close attention to the potential build-up in inflation expectations and financial imbalances. The MB reiterated that it stands ready to undertake further policy actions as necessary to safeguard price and financial stability,” it noted.

During the June 19 meeting, the MB kept the central bank’s overnight borrowing and lending rates at the record lows of 3.5% and 5.5%, respectively, for a 13th straight meeting.

Bank reserve requirement ratios were left unchanged as well. Strong liquidity growth over the last year had caused the body to hike these ratios by one percentage point each during its March 27 and May 8 meetings.

In another move meant to address brisk money supply expansion, SDA rates across all tenors were hiked by 25 basis points to 2.25% from 2%. The last time SDA rates were adjusted was in April last year.

Authorities have said that these adjustments are aimed at keeping a lid on robust growth in both liquidity and credit and address any corresponding risks to inflation.

The next MB policy meeting is on July 31. –Bettina Faye V. Roc, Senior Reporter, Businessmirror