BSP al­lays fears of over­heat­ing

The Philippine Star - - BUSINESS - By LAWRENCE AGCAOILI

The Bangko Sen­tral ng Pilip­inas (BSP) said fears of over­heat­ing due to strong credit and liq­uid­ity growth re­main un­founded amid the coun­try’s sound macroe­co­nomic fun­da­men­tals.

BSP of­fi­cer-in-charge Diwa Guini­gundo said the growth po­ten­tial of the Philip­pines has gone up com­pared to pre­vi­ous years as the econ­omy has be­come more pro­duc­tive, par­tic­u­larly in terms of cap­i­tal pro­duc­tiv­ity.

“If you es­tab­lish an anal­ogy between growth and bal­loon, the bal­loon has grown. Even if you pump in more wa­ter or air, it can ac­com­mo­date. It has a big­ger ca­pac­ity to do that with­out go­ing into ca­pac­ity con­straint,” he said.

Guini­gundo is­sued the clar­i­fi­ca­tion af­ter Moody’s In­vestor Ser­vice flagged emerg­ing ca­pac­ity con­straints such as la­bor short­ages in cer­tain sec­tors that could push up in­fla­tion.

“I don’t know where that ob­ser­va­tion is re­ally com­ing from be­cause the num­bers are quite clear. We have been en­joy­ing an in­crease in eco­nomic growth against a back­drop of sta­ble prices,” he added.

He ex­plained the la­bor mar­ket eco­nom­ics in the Philip­pines con­tinue to be fa­vor­able amid the fa­vor­able de­mo­graphic fac­tors, with the young pop­u­la­tion and others join­ing the for­mal sec­tor.

Aside from Moody’s, other debt watch­ers such as Fitch Rat­ings, mul­ti­lat­eral lender In­ter­na­tional Mone­tary Fund (IMF) as well as in­vest­ment banks led by DBS Bank Ltd of Sin­ga­pore warned the Philip­pines was show­ing some signs of over­heat­ing.

The coun­try’s gross do­mes­tic prod­uct growth im­proved to 6.5 per­cent in the sec­ond quar­ter from

6.4 per­cent in the first quar­ter, bring­ing the aver­age growth to 6.4 per­cent in the first half of the year.

On the other hand, in­fla­tion av­er­aged 3.1 per­cent in the first eight months of the year de­spite kick­ing up to a three-month high of 3.1 per­cent in Au­gust from 2.8 per­cent in July due to ris­ing food and non-food prices.

“When you are go­ing into ca­pac­ity con­straint, the tell-tale signs are very clear. If you have ca­pac­ity con­straint then that should tell on your in­fla­tion. In other words, in­fla­tion should be surg­ing but it is not,” he said.

The BSP has set an in­fla­tion tar­get of between two and four per­cent from 2017 to 2019. The cen­tral bank’s Mone­tary Board sees in­fla­tion av­er­ag­ing 3.2 per­cent in 2017 and 2018 be­fore ta­per­ing off to three per­cent in 2019.

Fur­ther­more, the BSP deputy gov­er­nor said bank lend­ing grew 19.2 per­cent while liq­uid­ity ex­panded 13.5 per­cent in July to sup­port the coun­try’s grow­ing econ­omy.

“Credit is ris­ing no doubt be­cause the econ­omy is also ex­pand­ing. You need credit and you need more liq­uid­ity to fi­nance eco­nomic growth,” Guini­gundo said.

Ac­cord­ing to Guini­gundo, au­thor­i­ties con­tinue to use some pa­ram­e­ters to check whether credit growth is reach­ing se­ri­ous pro­por­tions.

“Based on the pa­ram­e­ters that we are us­ing, we are far from those thresh­olds that should tell us that we are near­ing se­ri­ous pro­por­tion or a point where one can say that there is over ex­ten­sion of credit or over­heat­ing,” he added.

He said the move­ment of the peso against the US dol­lar is con­sis­tent with the eco­nomic fun­da­men­tals of the coun­try.

Although the lo­cal cur­rency has de­pre­ci­ated by more than two per­cent this year, he ex­plained the peso has ap­pre­ci­ated by 0.9 per­cent over the past 10 years.

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