Monetary authorities on full-watch mode to avoid overheating economy
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. yesterday reiterated that they have a firm handle on the economic stimulants and changes to make sure that it does not overheat.
“I can tell you that BSP spends a lot of time understanding the economy at any given point of time, developing a dynamic game plan, and executing effectively, so the economy doesn't overheat,” he said. This process is conducted systematically and regularly every six weeks.
Espenilla explained that the way they assess and review crucial monetary policy stance is through a two-stage evaluation process.
“Stage 1 brings to bear our combined analytical power across BSP – from economic research to market operations to supervision to payments. The formal management discussion, to firm up an evaluation and recommendation to the Monetary Board, takes about three hours,” he disclosed. “But those three hours are backed up by hundreds of man-hours of focused research,” he added.
The Stage 2 process is the Monetary Board meeting itself which normally will take three hours of “intense review” before a decision is released whether to “act or hold steady.”
“Then, repeat again six weeks later,” said Espenilla.
The BSP chief earlier said that the risk of overheating has been discussed by economists and analysts. He has announced that the economy is “not there yet” and they are vigilant to prevent overheating from happening at all.
“Simply put, overheating happens when the present demands on the economy significantly exceeds its present capacity to provide. Easy to say but always hard to discern since our economy is complex, with many moving parts,” said Espenilla. “And, the economic machine itself is constantly being improved through good investments. It is subjected to outside shocks as well. So one cannot jump to a conclusion just by looking at one or two bits of information. We have to strategically examine a whole lot of information to tell us how the overall economy is doing and, no less important, how should we respond if at all.”
Besides a regular and systematic review of economic conditions, Espenilla said the BSP is not just about monetary policy, it also wields “considerable supervisory powers” to keep the banking and financial system in line and to “prevent imprudent and reckless behaviors in individual entities and sectors that lead to unsustainable risk build ups.”
“That grinds on relentlessly. As I say, it's wrong to view the same way as 10 years ago how the financial system responds to risks and opportunities. It will be like looking at a child that never grows up or learns anything,” he said.
Espenilla said private sector comments and independent analysis are helpful and add depth to BSP studies and assessments. “That's why we extensively monitor and evaluate these as well.”
Espenilla likened the economy to how a race car is handled. “We are working hard to run our economy competitively so it finishes a winner. We are talking careful preparation, regular tune-ups and upgrades, skillful driving, and constant monitoring. The engine is expected to get hot along the way. That's what running engines do. But there's a huge difference between a hot engine and an overheated engine. If we don't like hot engines, we should keep our car parked.”
The Philippines is touted as one of the fastest growing economies not just in the region but in the world. It has reported 75 quarters of growth in a row, with annual growth of more than six percent since 2012.
The government expects to grow seven percent to eight percent over the medium term while independent analysts see growth being sustained at six percent to 6.5 percent.