Sustained growth provides leeway in policy setting – Medalla – Manila Bulletin

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Published December 1, 2022, 4:28 PM
by Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla on Thursday, Dec. 1, said the resilient economy supports the BSP’s monetary policy settings which continue to be appropriate.
“The favorable growth (provides) the BSP the flexibility to maneuver as it acts to bring inflation back to the target while helping the National Government steer the economy towards a durable recovery,” said Medalla.

As of Nov. 17, the BSP’s policy-making arm, the Monetary Board, has raised the benchmark rate by a combined 300 basis points (bps). The current BSP rate is at five percent.
Medalla has signalled to the market that they will continue to mirror the actions of the US Federal Reserve to keep the exchange rate stable and to anchor inflation expectations amid price pressures from both local and global developments.
The next BSP policy meeting is on Dec. 15. The market expects the BSP to increase the overnight borrowing rate or the reverse repurchase by another 50 bps this month.
Medalla said the “robust” third quarter gross domestic product (GDP) growth of 7.6 percent “places the Philippines in a strong position to meet its target GDP growth rate of 6.5 to 7.5 percent this year.”
The GDP has been on a growth path for the past six quarters after the pandemic-induced contractions between the first quarter 2020 until the first quarter 2021. In 2020, the GDP declined by 9.6 percent but recovered in 2021 at 5.6 percent, surpassing the government’s 2021 target of five percent to 5.5 percent.
As for inflation, the BSP estimates a 2022 full-year average of 5.8 percent as of Nov. 17. This will change on Dec. 15. For 2023, the BSP projection is 4.3 percent inflation and for the following year, 3.1 percent.
Inflation for the first 10 months averaged at 5.4 percent. October inflation was a 14-year high of 7.7 percent. The BSP on Nov. 30 said they forecast November inflation to range between 7.4 percent to 8.2 percent.
Medalla said in November that despite recession threats in the US and the expected downside risks that will impact on the country’s 2023 GDP, there is no threat of a recession for the Philippines.
The BSP chief said what they are watching out for is not a recession, but by how much the economy will fall behind the growth projections.
A recession occurs when there is prolonged economic contraction, typically two quarters of consecutive decline such as what happened in the Philippines in 2020.
Medalla said the government is hoping that GDP will grow by at least six percent next year, which will miss the target of 6.5 percent to eight percent for both 2023 and 2024.
The central bank said in a November report that GDP growth will reach the inter-agency Development Budget Coordinating Council’s target range of 6.5 percent to 7.5 percent for 2022, but “economic headwinds could result in slower GDP growth in 2023 and 2024.”
The GDP forecast for 2024 is also lower due to slower external demand as well as the impact of the BSP’s monetary policy tightening.
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