BSP chief douses overheating fears

Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. has likened the Philippine economy to a “race car” engine as he doused anew concerns about overheating.

“We are talking careful preparation, regular tuneups and upgrades, skillful driving, and constant monitoring. The engine is expected to get hot along the way. That’s what running engines do,” he said.

Espenilla said 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,” he added.

Espenilla said authorities are working hard to run the economy competitively so it finishes a winner.

“Simply put, overheating happens when the present demands on the economy significantly exceed its present capacity to provide. Easy to say but always hard to discern since our economy is complex, with many moving parts,” he said.

The BSP chief pointed out the pace of credit growth is not the only factor used in determining whether an economy is overheating.

He added the economic machine itself is constantly being improved through good investments and 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, how should we respond if at all,” he said.

Debt watchers Fitch Ratings and Moody’s Investors Service, multilateral lender International Monetary Fund as well as economists of various investment banks have flagged possible overheating of the Philippine economy.

Espenilla said the monetary authorities are ready to step in to prevent the possible overheating of the economy.

“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.

He added the policy toolkit of BSP is not just monetary policy since it has considerable supervisory powers over the banking and financial system to prevent imprudent and reckless behaviors in individual entities and sectors that lead to unsustainable risk build ups.

He said there are the strategic long-term financial sector reforms – domestic capital markets, foreign exchange markets, payment systems, financial inclusion and literacy.

The country’s gross domestic product (GDP) has booked a positive growth for 75 straight quarters, expanding 6.9 percent in the third quarter from the revised 6.7 percent in the second quarter.

On the other hand, inflation averaged 3.2 percent in the first 11 months of the year after easing to 3.3 percent in November from a three-year high of 3.5 percent in October due to lower food prices.

The robust domestic demand and benign inflation environment have allowed the BSP’s Monetary Board to keep interest rates steady since September 2014.