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BSP upbeat on 2011 economic prospects – Tetangco


The Bangko Sentral ng Pilipinas (BSP) sees continued positive developments in the domestic economy this year despite uncertainties in the global front.

BSP Governor Amando Tetangco Jr., in a forum Tuesday, said the country is “entering 2011 from a position of strength” after proving its resiliency to the recent global economic and financial crunch and its remnants.

He said major economies continue to show weak recovery from the recent global economic downturn but the domestic economy churned in higher-than-expected growth, manageable inflation, and remittances and capital flows continue to be strong, among others.

The economy posted a 7.5 percent growth, as measured by gross domestic product (GDP) in the first three quarters of 2010 because of recovery in investments and exports.

This growth is unexpected and is higher than the five to six percent growth target set by economic managers for last year.

This performance is projected to be repeated this year and enable the economy to meet the seven to eight percent GDP growth target.

Also, inflation remains low with the end-November figure at 3.8 percent, near the lower end of the 3.5-5.5 percent target for last year.

For 2011, monetary officials see the rate of price increases to average at 3.6 percent, near the lower end of this year’s three to five percent target.
Tetangco said this low-inflation environment provides monetary officials the flexibility to keep policy rates at record-low.

To date, central bank’s overnight borrowing or reverse repurchase (RRP) facility is at four percent while the overnight lending or repurchase (RP) facility is at six percent. These were maintained since July 2009 after a total of 200 basis points cut from December 2008 to July last year to address impact of the recent global financial crunch.

“Nonetheless, given stable domestic financial conditions, the BSP started a paced unwinding of its monetary easing measures in the first quarter of 2010,” Tetangco said.

Among these measures are the reversal to pre-crisis level of the P20-billion rediscounting budget after this was increased to P60 billion in 2009 and the rate of this facility was reverted to the same level as that of the RRP facility instead of 3.5 percent.

Relatively, foreign exchange inflows continue to be strong due to the money sent home by Filipinos abroad as well as foreign portfolio and direct investments.

Remittances were projected to grow by eight percent in 2010 compared to the US$ 17.3 billion in 2009.

As of last October, remittances amounted to US$ 15.456 billion, a 7.9 percent year-on-year growth, while for October 2010 alone the inflows registered a record-high of US$ 1.67 billion.

The country’s gross international reserves (GIR) reached US$ 60.6 billion as of last November, higher than the end-2009 level of US$ 44.2 billion while the balance of payments (BOP) surplus totaled US$ 13.2 billion.

These performance prompted ratings agency Standard and Poor’s (S&P) to upgrade the country’s long-term foreign currency sovereign credit rating one-notch higher to “BB” with stable outlook from “BB-/stable outlook.”

“The credit rating upgrade is also significant in that the Philippines received this directly, without having to go through the standard credit outlook upgrade first,” Tetangco pointed out.

The BSP chief said debt service ratio also improved to 7.9 percent as of last September from year-ago’s 8.7 percent amid the increase in external debt to US$ 59.8 billion as of end-September 2010.

While the local currency remained strong against the dollar with the volatility and appreciation in the middle of the range in the region.

Tetangco said the domestic banking system is still stable with the average capital adequacy ratio (CAR), the bank’s risk-based financial health gauge, at 15.23 percent, higher than the 10 percent requirement of the central bank.

He said 2011 is a “critical year that could spell whether we would be able to press on the road to sustained strong recovery.”

Among the global risks to domestic monetary policy and banking regulatory reforms that he sees are the uneven growth between advanced and emerging economies, shifting investor preferences and measures of risk, and market reaction to regulatory changes.

Tetangco said this year “opened with much hope” for the country and cited that monetary officials will “remain committed to its role as the steward for price and financial stability.”

“The BSP’s policy priority will be focused broadly on exercising continued vigilance over price developments, nurturing a healthy external payments position and management external debt, sustaining key financial reforms that will strengthen bank capitalization, supervision and market discipline, and pursuing social advocacies that are supportive of an inclusive economic growth,” he added.

By Joann Santiago-PNA

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