‘Gov’t spending won’t hike interest rates’
The Bangko Sentral ng Pilipinas (BSP) believes that there is no upward pressure on interest rates amid the decision of the Aquino administration to accelerate spending to boost the economy.
BSP Governor Amando Tetangco Jr. said in an interview with reporters that the decision of the government to spend more won’t put an upward pressure on interest rates.
“As to whether this will going to lead to interest rate increases I don’t think so because there’s enough liquidity in the system and the macroeconomic fundamentals remain sound,” Tetangco stressed.
Latest data from the BSP showed that domestic liquidity or the total amount of money circulating in the financial system grew 7.2 percent to P4.48 trillion as of endJanuary this year from P4.179 trillion as of end-january last year.
Liquidity growth is one of the important vehicles considered in determining the central bank’s monetary policy. At a time when the economy is booming and money supply is expanding rapidly, the central bank would normally step in to mop-up in order to ensure that inflation would not surge.
“Inflation is also expected to remain within the target range for this year and next year so increased government spending this year will most likely not lead to upward pressures on interest rates,” he added.
He pointed out that the government has enough room to increase spending this year after significantly trimming the budget deficit last year through cautious spending.
The Philippines managed to trim the budget deficit to P197.75 billion or two percent of gross domestic product (GDP) last year from a record level of P314.46 billion or 3.5 percent of GDP in 2010. Last year’s shortfall was P102.25 billion lower than the deficit ceiling of P300 billion for 2011.
Government revenues went up by 12.6 percent to P1.359 trillion last year from P1.207 trillion in 2010 but was P51.36 billion lower than the P1.411 trillion while spending climbed only by 2.32 percent to P1.557 trillion from P1.552 trillion and was P153.61 billion lower than the programmed expenditure of P1.711 trillion.
For the month of January alone, the government incurred a deficit of P15.94 billion – a complete reversal from a surplus of P13.42 billion in the same month last year as revenues dropped seven percent to P126.35 billion from P135.9 billion while spending jumped 16 percent to P142.3 billion from P122.49 billion.
“So that provides fiscal space in the whole scheme of things. Now this year revenues have also increased and therefore given the fiscal space that we had last year and which continues this year plus the increase in revenues then the government can accelerated spending this year,” he said.
Fiscal authorities have committed to trim the budget deficit at two percent of GDP starting 2013 until the end of President Aquino’s term in 2016.
So far this year, the Bangko Sentral ng Pilipinas (BSP) slashed interest rates by 50 basis points on the back of benign inflation outlook as well as slower-than-expected economic growth.
The BSP slashed policy rates by 25 basis points last January 19 and by another 25 basis points last March 1, bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate at six percent to boost the economy.
Weak global demand and cautious spending pulled down the country’s gross domestic product (GDP) growth to 3.7 percent last year from 7.6 percent in 2010 but the government sees the expansion recovering to between five percent and six percent this year.